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Fluctuations, Uncertainty and Income Inequality in Developing Countries


  • Fadi Fawaz

    (Department of Economics, Jamestown College, Jamestown, ND 58405, USA)

  • Masha Rahnamamoghadam

    (Department of Economics, Texas Tech University, Lubbock, TX 79409, USA)

  • Victor Valcarcel

    (Department of Economics, Texas Tech University, Lubbock, TX 79409, USA)


We analyze income inequality and high frequency movements in economic activity for low and high income developing countries (LIDC and HIDC). The impact of human capital, capital formation, and economic uncertainty on income inequality for LIDC and HIDC are also evaluated. We find strong evidence that business cycle fluctuations serve to exacerbate income inequality in HIDC while they help narrow the gap in LIDC. Importantly, volatility in output widens inequality across the board but to a consistently higher degree in HIDC. Schooling helps reduce income inequality in both country groups, while investment increases income inequality. Lastly, the Kuznets inverted U-curve hypothesis is confirmed for both LIDC and HIDC.

Suggested Citation

  • Fadi Fawaz & Masha Rahnamamoghadam & Victor Valcarcel, 2012. "Fluctuations, Uncertainty and Income Inequality in Developing Countries," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 38(4), pages 495-511.
  • Handle: RePEc:pal:easeco:v:38:y:2012:i:4:p:495-511

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    References listed on IDEAS

    1. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, March.
    2. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
    3. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    4. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
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    Cited by:

    1. Leena Kalliovirta & Tuomas Malinen, 2015. "Nonlinearity and cross-country dependence of income inequality," Working Papers 358, ECINEQ, Society for the Study of Economic Inequality.
    2. Fawaz, Fadi & Rahnamamoghadam, Masha & Valcarcel, Victor, 2014. "A Refinement of the Relationship between Economic Growth and Income Inequality in Developing Countries," MPRA Paper 55268, University Library of Munich, Germany.

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