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Inequality and Growth: Nonlinear Evidence from Heterogeneous Panel Data

Author

Listed:
  • Cho , Dooyeon

    (Sungkyunkwan University)

  • Kim , Bo Min

    (Korea Institute for International Economic Policy)

  • Rhee , Dong-Eun

    (Korea Institute for International Economic Policy)

Abstract

This paper investigates the nonlinear relationship between income inequality and economic growth using a heterogeneous panel data set of 77 countries. The estimated nonlinear function exhibits relatively smooth regime switching, as regards the income inequality level in the previous period. The point above which the time-varying coefficient estimate on inequality turns from positive to negative is found to be the Gini index of 24.5. The results suggest that while inequality hinders economic growth in most of the countries, it accelerates economic growth only in a country where the level of inequality is very low. Furthermore, the results reveal that the negative effects of income inequality on economic growth become more serious in developing countries whose level of inequality is relatively higher. The supplementary linear regressions with various specifications generally confirm the results obtained from the nonlinear model.

Suggested Citation

  • Cho , Dooyeon & Kim , Bo Min & Rhee , Dong-Eun, 2014. "Inequality and Growth: Nonlinear Evidence from Heterogeneous Panel Data," Working Papers 14-1, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2014_001
    DOI: 10.2139/ssrn.2533846
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    References listed on IDEAS

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    3. Davis, Lewis S., 2018. "Political economy of growth with a taste for status," Journal of Public Economics, Elsevier, vol. 168(C), pages 35-46.

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    More about this item

    Keywords

    Growth; Inequality; Nonlinearity; Panel Smooth Transition Regression Model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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