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Unemployment and long-run economic growth: The role of income inequality and urbanisation

  • Castells-Quintana , David

    ()

    (AQR-IREA. Universidad de Barcelona)

  • Royuela, Vicente

    ()

    (AQR-IREA. Universidad de Barcelona)

Two of the most dramatic aspects of the current economic crisis are with no doubt the experience of high and persistent rates of unemployment and the accelerated pace at which inequalities increase. But high and persistent levels of unemployment and increasing inequality are more than a consequence of scarcer opportunities related to the crisis; they can also be negative determinants for subsequent long-run economic growth. In this work, we consider unemployment and income inequality, and interactions between both, as possible determinants of longrun growth by using cross-sectional international data. Our results suggest that: 1) while initial high unemployment rates do not seem to be statistically significant to explain long-run growth, they do have a negative and significant effect when interacting with increases in inequality. 2) When we differentiate based on levels of urbanization, increasing inequality harms growth in countries with high levels of urbanization, as well as in countries with low levels of urbanization in which there is high and persistent unemployment.

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Article provided by Asociación Española de Ciencia Regional in its journal Investigaciones Regionales.

Volume (Year): (2012)
Issue (Month): 24 ()
Pages: 153-173

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Handle: RePEc:ris:invreg:0007
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  1. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  2. Mark D. Partridge, 2005. "Does Income Distribution Affect U.S. State Economic Growth?," Journal of Regional Science, Wiley Blackwell, vol. 45(2), pages 363-394.
  3. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  4. Hongyi Li & Heng-fu Zou, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," CEMA Working Papers 74, China Economics and Management Academy, Central University of Finance and Economics.
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