IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/74963.html
   My bibliography  Save this paper

Issue of Income Inequality under the perceptive of Macroeconomic Instability: An Empirical Analysis of Pakistan

Author

Listed:
  • Ali, Amjad

Abstract

This study has investigated the impact of macroeconomic instability on income inequality in Pakistan over the period of 1980 to 2015. A comprehensive macroeconomic instability index has been constructed by incorporating inflation rate, unemployment rate, trade deficit and budget deficit. Stationarity of data is checked with the help of Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Dickey-Fuller Generalized Least Squares (DF-GLS) unit root tests. Autoregressive Distributed Lag (ARDL) model has been used for examining the co-integration among the variables of the model and Vector Error-Correction model has been used for short run dynamics of the model. The empirical results of the study confirm the existence of co-integration between macroeconomic instability and income inequality in Pakistan. The results of the study show that macroeconomic instability has deep rooted impact on income inequality in case of Pakistan. Hence, for achieving desired level of income distribution, Pakistan should make its macroeconomic environment stable.

Suggested Citation

  • Ali, Amjad, 2016. "Issue of Income Inequality under the perceptive of Macroeconomic Instability: An Empirical Analysis of Pakistan," MPRA Paper 74963, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:74963
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/74963/1/MPRA_paper_74963.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. de Bruyn, S. M. & van den Bergh, J. C. J. M. & Opschoor, J. B., 1998. "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves," Ecological Economics, Elsevier, vol. 25(2), pages 161-175, May.
    2. De Gregorio, Jose & Lee, Jong-Wha, 2002. "Education and Income Inequality: New Evidence from Cross-Country Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(3), pages 395-416, September.
    3. Ricardo J. Caballero, 2007. "Specificity and the Macroeconomics of Restructuring," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033623, January.
    4. Reardon, Thomas & Taylor, J. Edward, 1996. "Agroclimatic shock, income inequality, and poverty: Evidence from Burkina Faso," World Development, Elsevier, vol. 24(5), pages 901-914, May.
    5. Pasinetti, Luigi L, 1989. "Ricardian Debt/Taxation Equivalence in the Kaldor Theory of Profits and Income Distribution," Cambridge Journal of Economics, Oxford University Press, vol. 13(1), pages 25-36, March.
    6. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    7. Suri, Vivek & Chapman, Duane, 1998. "Economic growth, trade and energy: implications for the environmental Kuznets curve," Ecological Economics, Elsevier, vol. 25(2), pages 195-208, May.
    8. David E. Sahn & David C. Stifel, 2003. "Urban--Rural Inequality in Living Standards in Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(4), pages 564-597, December.
    9. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    10. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    11. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
    12. Kakwani, Nanak C, 1977. "Applications of Lorenz Curves in Economic Analysis," Econometrica, Econometric Society, vol. 45(3), pages 719-727, April.
    13. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
    14. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
    15. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 353-377.
    16. Demery, Lionel & Addison, Tony, 1987. "Stabilization policy and income distribution in developing countries," World Development, Elsevier, vol. 15(12), pages 1483-1498, December.
    17. George W. Hammond & Eric Thompson, 2006. "Determinants of Income Growth in U.S. Metropolitan and Non-metropolitan Labor Markets," Working Papers 06-12 Classification- JEL, Department of Economics, West Virginia University.
    18. Rebecca M. Blank & Alan S. Blinder, 1985. "Macroeconomics, Income Distribution, and Poverty," NBER Working Papers 1567, National Bureau of Economic Research, Inc.
    19. Fischer, S., 1991. "Growth, Macroeconomics, and Development," Working papers 580, Massachusetts Institute of Technology (MIT), Department of Economics.
    20. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Chapters,in: NBER Macroeconomics Annual 1991, Volume 6, pages 329-379 National Bureau of Economic Research, Inc.
    21. Halkos, George & Tzeremes, Nickolaos, 2011. "Kuznets curve and environmental performance: evidence from China," MPRA Paper 34312, University Library of Munich, Germany.
    22. Ali, Amjad & Ur Rehman, Hafeez, 2015. "Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan," MPRA Paper 82496, University Library of Munich, Germany, revised 2015.
    23. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    24. Blinder, Alan S & Esaki, Howard Y, 1978. "Macroeconomic Activity and Income Distribution in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 604-609, November.
    25. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    26. Metcalf, Charles E, 1969. "The Size Distribution of Personal Income during the Business Cycle," American Economic Review, American Economic Association, vol. 59(4), pages 657-668, Part I Se.
    27. José Antonio Ocampo, 2005. "A Broad View of Macroeconomic Stability," Working Papers 1, United Nations, Department of Economics and Social Affairs.
    28. McCONNELL, KENNETH E., 1997. "Income and the demand for environmental quality," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 383-399, November.
    29. Valentine, Theodore R., 1993. "Drought, transfer entitlements, and income distribution: The Botswana experience," World Development, Elsevier, vol. 21(1), pages 109-126, January.
    30. Bourguignon, Francois & Morrisson, Christian, 1998. "Inequality and development: the role of dualism," Journal of Development Economics, Elsevier, vol. 57(2), pages 233-257.
    31. James Laurenceson & Joseph C.H. Chai, 2003. "Financial Reform and Economic Development in China," Books, Edward Elgar Publishing, number 2714.
    32. Terry Sicular & Yue Ximing & Björn Gustafsson & Li Shi, 2007. "The Urban-Rural Income Gap And Inequality In China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(1), pages 93-126, March.
    33. Mah, Jai S., 2000. "An empirical examination of the disaggregated import demand of Korea--the case of information technology products," Journal of Asian Economics, Elsevier, vol. 11(2), pages 237-244.
    34. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
    35. Kenneth Smith, 2007. "Determinants of Soviet Household Income," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 3-24, June.
    36. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    37. USMAN AFRIDI & AsGHAR QADIR & JAVED ZAKI, 1984. "Effects of Dual Sector Inflation Across Income Levels in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 23(2-3), pages 381-392.
    38. Singh, S K & Maddala, G S, 1976. "A Function for Size Distribution of Incomes," Econometrica, Econometric Society, vol. 44(5), pages 963-970, September.
    39. Drugeon, Jean-Pierre & Wigniolle, Bertrand, 1996. "Continuous-Time Sunspot Equilibria and Dynamics in a Model of Growth," Journal of Economic Theory, Elsevier, vol. 69(1), pages 24-52, April.
    40. Okidi, John A. & Okwi, Paul O. & Ddumba-Ssentamu, John, 2003. "Welfare distribution and poverty in Uganda, 1992 to 2000," Occasional Papers 93853, Economic Policy Research Centre (EPRC).
    41. M. Ghaffar Chaudhry, 1982. "Green Revolution and Redistribution of Rural Incomes. Pakistan's Experience," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 21(3), pages 173-205.
    42. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    43. Ahmed Raza Cheema & Ahmed Raza Cheema, 2012. "Poverty, Income Inequality, and Growth in Pakistan: A Pooled Regression Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(2), pages 137-157, July-Dec.
    44. Charalambos Pattichis, 1999. "Price and income elasticities of disaggregated import demand: results from UECMs and an application," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1061-1071.
    45. Anand, Sudhir & Kanbur, S. M. R., 1993. "The Kuznets process and the inequality--development relationship," Journal of Development Economics, Elsevier, vol. 40(1), pages 25-52, February.
    46. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    47. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    48. W. Neil Adger, 1999. "Exploring income inequality in rural, coastal Viet Nam," Journal of Development Studies, Taylor & Francis Journals, vol. 35(5), pages 96-119.
    49. Shafik, Nemat, 1994. "Economic Development and Environmental Quality: An Econometric Analysis," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 757-773, Supplemen.
    50. Knight, J B & Sabot, R H, 1983. "Educational Expansion and the Kuznets Effect," American Economic Review, American Economic Association, vol. 73(5), pages 1132-1136, December.
    51. Francois Bourguignon, 2004. "The Poverty-growth-inequality triangle," Indian Council for Research on International Economic Relations, New Delhi Working Papers 125, Indian Council for Research on International Economic Relations, New Delhi, India.
    52. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Working Papers 3702, National Bureau of Economic Research, Inc.
    53. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    54. Moomaw, William R. & Unruh, Gregory C., 1997. "Are environmental Kuznets curves misleading us? The case of CO2 emissions," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 451-463, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bibi, Chan & Audi, Marc & Ali, Amjad, 2017. "The Impact of Gender Inequality and Environmental Degradation on Human Well-Being in The Case of Pakistan: A Time Series Analysis," MPRA Paper 83470, University Library of Munich, Germany.

    More about this item

    Keywords

    macroeconomic instability; income inequality; Pakistan; co-integration;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:74963. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.