Middle income trap and income inequality: Empirical evidence on the distributional effect of economic liberalization and political regime
In this paper I empirically examine the income-equalizing role of economic liberalization policies and political regime in a sample of 117 countries over the period of 1970-2014. With a specific focus on the middle income countries (MICs) shown to have been “trapped” at that level long after their transition from low income status, I propose that income inequality could be the underlying factor exacerbating growth slowdowns and suppressing development strategies aiming to escape from the trap and graduate to high income level. Using the Standardized World Income Inequality dataset, and via panel fixed effects and system GMM estimations that are able to handle unobserved heterogeneity, omitted variable bias and potential endogeneity, I examine the interrelationship between income inequality, five dimensions of Economic Freedom in the World, and democracy measures. The findings yield robust empirical evidence that freedom to trade internationally, unpredictable inflation and money supply, and small government size have significant relationship with inequality. Nevertheless, the impact of these variables on income inequality depends on the types of political regime in the country under study. The results suggest that these liberalization policies may yield the intended positive effect on income distribution in the presence of sufficiently democratic political regime.
|Date of creation:||Nov 2016|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Albanesi, Stefania, 2007.
"Inflation and inequality,"
Journal of Monetary Economics,
Elsevier, vol. 54(4), pages 1088-1114, May.
- Stefania Albanesi, "undated". "Inflation and Inequality," Working Papers 199, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Albanesi, Stefania, 2002. "Inflation and Inequality," CEPR Discussion Papers 3470, C.E.P.R. Discussion Papers.
- Stefania Albanesi, 2001. "Inflation and Inequality," LIS Working papers 323, LIS Cross-National Data Center in Luxembourg.
- Stefania Albanesi, 2002. "Inflation and Inequality," Macroeconomics 0201002, EconWPA.
- Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
- Robert C. Feenstra & Robert Inklaar & Marcel Timmer, 2013. "The Next Generation of the Penn World Table," NBER Working Papers 19255, National Bureau of Economic Research, Inc.
- Ezcurra, Roberto & Rodríguez-Pose, Andrés, 2013. "Does Economic Globalization affect Regional Inequality? A Cross-country Analysis," World Development, Elsevier, vol. 52(C), pages 92-103.
- Ezcurra, Roberto & Rodriguez-Pose, Andres, 2013. "Does economic globalization a ffect regional inequality? A cross-country analysis," CEPR Discussion Papers 9557, C.E.P.R. Discussion Papers.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- L. ALAN WINTERS & NEIL McCULLOCH & ANDREW McKAY, 2015. "Trade Liberalization and Poverty: The Evidence So Far," World Scientific Book Chapters,in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 14, pages 271-314 World Scientific Publishing Co. Pte. Ltd..
- L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
- César Calderón & Alberto Chong, 2009. "Labor market institutions and income inequality: an empirical exploration," Public Choice, Springer, vol. 138(1), pages 65-81, January.
- Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2009. "Institutional development, financial deepening and economic growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 157-170, January.
- Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2006. "Institutional development, financial deepening and economic growth : evidence from China," BOFIT Discussion Papers 12/2006, Bank of Finland, Institute for Economies in Transition.
- Paul Wachtel & Iftekhar Hasan & Mingming Zhou, 2007. "Institutional Development, Financial Deepening and Economic Growth: Evidence from China," Working Papers 07-16, New York University, Leonard N. Stern School of Business, Department of Economics.
- John Carter, 2007. "An Empirical Note on Economic Freedom and Income Inequality," Public Choice, Springer, vol. 130(1), pages 163-177, January.
- M.O. Odedokun & Jeffery Round, 2004. "Determinants of Income Inequality and its Effects on Economic Growth: Evidence from African Countries," African Development Review, African Development Bank, vol. 16(2), pages 287-327.
- Timmons, Jeffrey F., 2010. "Does Democracy Reduce Economic Inequality?," British Journal of Political Science, Cambridge University Press, vol. 40(04), pages 741-757, October.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- R Blundell & Steven Bond, "undated". "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Richard Blundell & Stephen Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- Bergh, Andreas & Nilsson, Therese, 2010. "Do liberalization and globalization increase income inequality?," European Journal of Political Economy, Elsevier, vol. 26(4), pages 488-505, December.
- Muhammed N. Islam, 2016. "Does democracy reduce income inequality?," Empirical Economics, Springer, vol. 51(4), pages 1299-1318, December.
- Indermit Gill & Homi Kharas, 2007. "An East Asian Renaissance : Ideas for Economic Growth," World Bank Publications, The World Bank, number 6798, April.
- Berggren, Niclas, 1999. "Economic Freedom and Equality: Friends or Foes?," Public Choice, Springer, vol. 100(3-4), pages 203-223, September.
- Asteriou, Dimitrios & Dimelis, Sophia & Moudatsou, Argiro, 2014. "Globalization and income inequality: A panel data econometric approach for the EU27 countries," Economic Modelling, Elsevier, vol. 36(C), pages 592-599.
- Li, Muqun & Coxhead, Ian, 2009. "Trade, Technology and Inequality in a Developing Country: Theory and Evidence from China," Staff Paper Series 539, University of Wisconsin, Agricultural and Applied Economics.
- Ravi Kanbur & Juzhong Zhuang, 2013. "Urbanization and Inequality in Asia," Asian Development Review, MIT Press, vol. 30(1), pages 131-147, March.
- Kanbur, Ravi & Zhuang, Juzhong, 2013. "Urbanization and Inequality in Asia," Working Papers 180092, Cornell University, Department of Applied Economics and Management.
- Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
- Robert J. Barro & Jong-Wha Lee, 2010. "A New Data Set of Educational Attainment in the World, 1950-2010," NBER Working Papers 15902, National Bureau of Economic Research, Inc.
- Shin, Inyong, 2012. "Income inequality and economic growth," Economic Modelling, Elsevier, vol. 29(5), pages 2049-2057.
- Shin, Inyong, 2008. "Income Inequality and Economic Growth," MPRA Paper 24397, University Library of Munich, Germany.
- José Cheibub & Jennifer Gandhi & James Vreeland, 2010. "Democracy and dictatorship revisited," Public Choice, Springer, vol. 143(1), pages 67-101, April.
- Adalgiso Amendola & Joshy Easaw & Antonio Savoia, 2013. "Inequality in developing economies: the role of institutional development," Public Choice, Springer, vol. 155(1), pages 43-60, April.
- AMENDOLA, Adalgiso & EASAW, Joshy & SAVOIA, Antonio, 2010. "Inequality in Developing Economies: The Role of Institutional Development," CELPE Discussion Papers 116, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
- Adalgiso Amendola & Joshy Easaw & Antonio Savoia, 2011. "Inequality in Developing Economies: The Role of Institutional Development," Discussion Papers 1107, Exeter University, Department of Economics.
- Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, vol. 89(2), pages 285-296, July.
- Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2008. "Financial Development and Openness: Evidence from Panel Data," Center for Policy Research Working Papers 107, Center for Policy Research, Maxwell School, Syracuse University.
- Lawson Robert & Ross Justin, 2010. "Economic Freedom and Beauty Pageant Success in the World," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 16(1), pages 1-17, October.
- Lin, Faqin & Fu, Dahai, 2016. "Trade, Institution Quality and Income Inequality," World Development, Elsevier, vol. 77(C), pages 129-142.
- David De Ferranti & Guillermo E. Perry & Francisco H.G. Ferreira & Michael Walton, 2004. "Inequality in Latin America : Breaking with History?," World Bank Publications, The World Bank, number 15009, April.
- Meschi, Elena & Vivarelli, Marco, 2009. "Trade and Income Inequality in Developing Countries," World Development, Elsevier, vol. 37(2), pages 287-302, February.
- Stephen G. Hall & Mahyudin Ahmad, 2014. "Revisiting the institutions-growth nexus in developing countries: The new evidence," New Zealand Economic Papers, Taylor & Francis Journals, vol. 48(3), pages 301-312, December.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Wu, Jyun-Yi & Hsu, Chih-Chiang, 2012. "Foreign direct investment and income inequality: Does the relationship vary with absorptive capacity?," Economic Modelling, Elsevier, vol. 29(6), pages 2183-2189.
- Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
- Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:76437. 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)
If references are entirely missing, you can add them using this form.