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Effects of Income Inequality on Growth through Efficiency Improvement and Capital Accumulation

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  • Yamamura, Eiji
  • Shin, Inyong

Abstract

In the present paper, the inverted-U shape relationship between growth and inequality found in Chen(2003), is reexamined. We decompose productivity growth into efficiency improvement, capital accumulation and technological progress and then ascertain their determinants by employing a fixed effects and dynamic panel models. In particular, this paper focuses on the question of how economic inequality affects capital accumulation and efficiency improvement. Key findings are that inequality enhances efficiency improvement as well as capital accumulation and then undermines them as inequality widens. However, other factors such as human capital, openness, and government consumption have different effects on them.

Suggested Citation

  • Yamamura, Eiji & Shin, Inyong, 2008. "Effects of Income Inequality on Growth through Efficiency Improvement and Capital Accumulation," MPRA Paper 10220, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:10220
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    References listed on IDEAS

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    1. Alberto Alesina & Eliana La Ferrara, 2000. "Participation in Heterogeneous Communities," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 847-904.
    2. Yamamura, Eiji & Shin, Inyong, 2008. "The benefit of efficiency improvement on growth and convergence: A study using Japan panel data," Economics Letters, Elsevier, vol. 99(1), pages 209-211, April.
    3. Sukiassyan, Grigor, 2007. "Inequality and growth: What does the transition economy data say?," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 35-56, March.
    4. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
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    Cited by:

    1. Muhammad Shahbaz & Ijaz Rehman & Nurul Mahdzan, 2014. "Linkages between income inequality, international remittances and economic growth in Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(3), pages 1511-1535, May.
    2. Alexander Cotte Poveda & Clara Inés Pardo Martínez, 2011. "Las tendencias de la pobreza y la desigualdad: una evidencia para los departamentos de Colombia," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 29-50, November.

    More about this item

    Keywords

    Inequality; Growth; Fixed effects;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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