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An empirical investigation of the relationship between inequality and growth

  • Patrizio Pagano

    ()

    (Bank of Italy, Economic Research Department)

This paper studies the correlation between inequality, measured by the Gini coefficent of incomes, and the growth rate of per capita GDP in a panel of countries between the late 1950s and late 1990s. Inequality Granger causes growth with a negative coefficient, while growth Granger causes inequality with a positive sign. Quantitatively, the former effect appears much larger than the latter. Once I allow for the effect to differ between rich and poor countries interesting differences emerge. While lagged inequality appears positively correlated with growth in the subgroup of rich countries, in poor countries besides a negative and significant effect of lagged inequality on growth there is a negative and significant effect of lagged growth on inequality

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2004/2004-0536/tema_536.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 536.

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Date of creation: Dec 2004
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Handle: RePEc:bdi:wptemi:td_536_04
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  1. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  2. Antonio Spilimbergo & Juan Luis Londoño & Miguel Székely, 1997. "Income Distribution, Factor Endowments, and Trade Openness," Research Department Publications 4088, Inter-American Development Bank, Research Department.
  3. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  4. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc.
  5. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
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  7. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
  8. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
  9. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 367-397.
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  11. Atkinson, A-B, 1996. "Bringing Income Distribution in from the Cold," Economics Papers 117, Economics Group, Nuffield College, University of Oxford.
  12. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  13. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  14. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
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  17. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
  18. repec:dau:papers:123456789/10091 is not listed on IDEAS
  19. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
  20. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
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  24. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
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