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Inequality and economic growth: the role of initial income

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  • Markus Brueckner

    (Australian National University)

  • Daniel Lederman

    (World Bank)

Abstract

We estimate a panel model where the relationship between inequality and GDP per capita growth depends on countries’ initial incomes. Estimates of the model show that the relationship between inequality and GDP per capita growth is significantly decreasing in countries’ initial incomes. Results from instrumental variables regressions show that in Low Income Countries transitional growth is boosted by greater income inequality. In High Income Countries inequality has a significant negative effect on transitional growth. For the median country in the world, that in the year 2015 had a PPP GDP per capita of around 10000USD, IV estimates predict that a 1 percentage point increase in the Gini coefficient decreases GDP per capita growth over a 5-year period by over 1 percentage point; the long-run effect on the level of GDP per capita is around − 5%.

Suggested Citation

  • Markus Brueckner & Daniel Lederman, 2018. "Inequality and economic growth: the role of initial income," Journal of Economic Growth, Springer, vol. 23(3), pages 341-366, September.
    • Handle: RePEc:kap:jecgro:v:23:y:2018:i:3:d:10.1007_s10887-018-9156-4
    DOI: 10.1007/s10887-018-9156-4
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