Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations
AbstractIt is well known from nonlinear aggregation theory that distributions play a central role in the determination of aggregate relations. This paper establishes a bridge between the aggregation and the inequality and growth literature by applying a log-linear aggregation method to a simple heterogeneous AK growth model. The aggregation effect is explicitly captured in the growth equation by the changes of the mean logarithmic deviation (MLD or Theil’s second measure) of the income, implying that increases in income inequality may be unambiguously associated with temporary increases in a country’s growth rate, in agreement with the empirical findings of Forbes (AER, 2000). Consequently, empirical studies of the long-run effects of income inequality may suffer from aggregation bias if the temporary effects of the MLD changes are not considered. The accelerated growth episodes observed in Brazil and China demonstrate that the increase in income inequality may have resulted in substantial temporary increases in the aggregate growth rates experienced by those countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Development and Comp Systems with number 0511028.
Length: 22 pages
Date of creation: 26 Nov 2005
Date of revision:
Note: Type of Document - pdf; pages: 22
Contact details of provider:
Web page: http://18.104.22.168
Inequality; Growth; Income Distribution; Aggregation; Heterogeneity; AK Model; Brazil; China;
Other versions of this item:
- Pedro H. Albuquerque, 2004. "Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations," Econometric Society 2004 Latin American Meetings 7, Econometric Society.
- Pedro H. Albuquerque, 2004. "Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations," Econometric Society 2004 Far Eastern Meetings 769, Econometric Society.
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O50 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-09 (All new papers)
- NEP-CNA-2005-12-09 (China)
- NEP-DEV-2005-12-09 (Development)
- NEP-SEA-2005-12-09 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xu, Lixin Colin & Zou, Heng-fu, 2000.
"Explaining the changes of income distribution in China,"
China Economic Review,
Elsevier, vol. 11(2), pages 149-170, December.
- Lixin Colin Xu & Heng-fu Zou, 2000. "Explaining the Changes of Income Distribution in China," CEMA Working Papers 473, China Economics and Management Academy, Central University of Finance and Economics.
- Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
- Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
- Larry E. Jones & Rodolfo E. Manuelli, 1994.
"The Sources of Growth,"
GE, Growth, Math methods
9410002, EconWPA, revised 05 Mar 1999.
- Stoker, Thomas M, 1986. "Simple Tests of Distributional Effects on Macroeconomic Equations," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 763-95, August.
- Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
- Fishlow, Albert, 1972. "Brazilian Size Distribution of Income," American Economic Review, American Economic Association, vol. 62(2), pages 391-402, May.
- van Garderen, Kees Jan & Lee, Kevin & Pesaran, M. Hashem, 2000.
"Cross-sectional aggregation of non-linear models,"
Journal of Econometrics,
Elsevier, vol. 95(2), pages 285-331, April.
- Pedro H. Albuquerque, 2003. "A practical log-linear aggregation method with examples: heterogeneous income growth in the USA," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(6), pages 665-678.
- Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
- Fields, Gary S, 1980. "Who Benefits from Economic Development? Reply," American Economic Review, American Economic Association, vol. 70(1), pages 257-62, March.
- Ravallion, Martin, 1998. "Does aggregation hide the harmful effects of inequality on growth?," Economics Letters, Elsevier, vol. 61(1), pages 73-77, October.
- Fishlow, Albert, 1980. "Who Benefits from Economic Development? Comment," American Economic Review, American Economic Association, vol. 70(1), pages 250-56, March.
- Gibson, John & Huang, Jikun & Rozelle, Scott, 2001. "Why is income inequality so low in China compared to other countries?: The effect of household survey methods," Economics Letters, Elsevier, vol. 71(3), pages 329-333, June.
- Lewbel, Arthur, 1992. "Aggregation with Log-Linear Models," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 635-42, July.
- Hirschman, Albert O & Rothschild, Michael, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 544-66, November.
- Xin Meng, 2004. "Economic Restructuring and Income Inequality in Urban China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(3), pages 357-379, 09.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.