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The relationship between economic growth and inequality: evidence from the age of market liberalism

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  • Angeles-Castro, Gerardo
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    Abstract

    Based on panel data we find that the inequality-growth relationship follows an ordinary-U curve during the period 1970-1998, in which inequality first decreases and then increases with economic growth. We also find some evidence that the increasing pattern of inequality may reverse at higher levels of income. The time-series approach complements the analysis and reveals that a substantial group of countries capture a minimum turning point in the 1980s on average and it is found to occur earlier for developed economies compare to developing ones; only a few countries reverse inequality in a latter stage and display a maximum turning point during the late 1990s; these countries are associated with a high governance indicator and moderate expansion of trade and FDI. Hence, during the era of market openness the inequalitygrowth relationship changed and became positive, although it is likely that income distribution improves with economic growth at a latter stage; the implication of this is that this relationship can be described in period cycles. --

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    Bibliographic Info

    Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 2.

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    Date of creation: 2006
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    Handle: RePEc:zbw:gdec06:4725

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    Keywords: Economic liberalisation; Income distribution; Economic Growth; Dynamic Panel Data Models; Time Series Analysis;

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    1. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
    3. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
    4. Peter Jacobsen & David Giles, 1998. "Income distribution in the United States: Kuznets' inverted-U hypothesis and data non-stationarity," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(4), pages 405-423.
    5. Ozlem Onaran, 2004. "Life After Crisis For Labor And Capital in the Era of Neoliberal Globalization," Working Papers geewp43, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    6. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    7. Kanbur, Ravi, 2000. "Income distribution and development," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 13, pages 791-841 Elsevier.
    8. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    9. Milanovic, Branko, 1995. "Poverty, inequality, and social policy in transition economies," Policy Research Working Paper Series 1530, The World Bank.
    10. Anand, Sudhir & Kanbur, S. M. R., 1993. "Inequality and development A critique," Journal of Development Economics, Elsevier, vol. 41(1), pages 19-43, June.
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    Cited by:
    1. Muhammad Shahbaz, 2010. "Income inequality-economic growth and non-linearity: a case of Pakistan," International Journal of Social Economics, Emerald Group Publishing, vol. 37(8), pages 613-636, July.
    2. Caroline Daymon & Céline Gimet, 2007. "Les déterminants de l'inégalité et le rôle de l'équité dans les pays du Moyen-Orient et de l'Afrique du Nord," Post-Print halshs-00371042, HAL.

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