The Effects of Income Inquality on Economic Growth in New Fragile Five Countries

Brazil, India, Indonesia, Turkey and South Africa referred as the “fragile five†by Morgan Stanley, 1 August 2013. After this describing, in November 2017, Standard&Poor’s suggest that the Turkey, Argentina, Qatar, Egypt and Pakistan are the new “fragile five†and this countries needed foreign capital flows to eliminate the current account deficit. In these countries, there are problems such as high inflation, large current account deficits, coerced capital flow expectations, external security deficit and unstable growth. The New Fragile Five countries identified by Standard & Poor's are included in the study. Lorenz curve or Gini coefficient obtained from Lorenz curve is used to measure income inequality. Gini coefficient is between 0 and 1 and the income inequality decreases as the coefficient approaches 0, and the income inequality increases as it approaches 1. Although the origin of the relationship between income inequality and economic growth dates back to Smith, it is synonymous with Kuznets' inverse U hypothesis. According to this hypothesis, income inequality initially increased and it will decrease after a certain point. In this study, the Fragile Five new countries (Turkey, Argentina, Qatar, Egypt and Pakistan), effect of income inequality on economic growth for the 1996-2016 period were tested with panel data analysis. In this context cross-sectional dependence was tested in the series and it was found that the series were stationary to the different degree. Then the direction and coefficients of the relationship were determined with ARDL model. According to the results of this study, 1 unit increase in GINI coefficient decreases economic growth by -2,644 units in the long run term.