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Income Inequality and Economic Growth

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  • Mo, Pak Hung

Abstract

We develop an analytical framework to investigate some plausible channels that income inequality affects economic growth. Our empirical study concludes that income inequality has significant negative effect on the rate of GDP growth. Among the channels suggested by recent literature, we find that the most important one is the transfer channel while the least important one is the human capital channel. However, the direct impact of income inequality on the rate of productivity growth accounts for more than 55 percent of its overall total effect. This indicates that the effects of income inequality on economic growth are much more complicated than what we have perceived and modeled. Copyright 2000 by WWZ and Helbing & Lichtenhahn Verlag AG

Suggested Citation

  • Mo, Pak Hung, 2000. "Income Inequality and Economic Growth," Kyklos, Wiley Blackwell, vol. 53(3), pages 293-315.
  • Handle: RePEc:bla:kyklos:v:53:y:2000:i:3:p:293-315
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    1. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    2. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
    3. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
    4. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    5. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    6. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    7. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-1032, December.
    8. Kang Park, 1998. "Distribution and growth: cross-country evidence," Applied Economics, Taylor & Francis Journals, vol. 30(7), pages 943-949.
    9. Perotti, Roberto, 1994. "Income distribution and investment," European Economic Review, Elsevier, vol. 38(3-4), pages 827-835, April.
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