Nonlinearity between Inequality and Growth (original) (raw)
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Economic Journal of Emerging Markets, 2022
Purpose ― The paper queries the impacts of income inequality on economic growth in selected advanced and emerging market economies by adopting nonlinearity and endogeneity. Methods ― This research analysis is based on a balanced panel from 1996 to 2018 and employs the dynamic panel threshold analysis after baseline estimations with the fixed-effect, system Generalized Method of Moments, and difference Generalized Method of Moments. Findings ― This study finds a nonlinearity between income inequality and economic growth. Income inequality has a significant threshold effect on the growth of both panels. Besides, the threshold effect of emerging market countries is higher than the level for advanced countries. This means emerging market economies are negatively affected above the estimated threshold value according to the advanced economies. Implication ― This paper supports that inequality may harm much more economic growth above a specific level. On the other hand, these distorting effects are related to the other economic issues of countries, such as government spending, inflation, export of goods and services, gross fixed capital formation, and foreign direct investment. Originality ― This paper contributes to the literature by focusing on the nonlinear effects of income inequality and different aspects of economic growth above or below the estimated threshold value, thereby providing cross-country comparability and endogeneity.
Economic Journal of Emerging Markets
Purpose ― The paper queries the impacts of income inequality on economic growth in selected advanced and emerging market economies by adopting nonlinearity and endogeneity. Methods ― This research analysis is based on a balanced panel from 1996 to 2018 and employs the dynamic panel threshold analysis after baseline estimations with the fixed-effect, system Generalized Method of Moments, and difference Generalized Method of Moments. Findings ― This study finds a nonlinearity between income inequality and economic growth. Income inequality has a significant threshold effect on the growth of both panels. Besides, the threshold effect of emerging market countries is higher than the level for advanced countries. This means emerging market economies are negatively affected above the estimated threshold value according to the advanced economies. Implication ― This paper supports that inequality may harm much more economic growth above a specific level. On the other hand, these distorting e...
On the dynamic relationship between Inequality and Economic growth
2020
This study re-examines the nonlinear relationship between inequality and economic growth in the dynamic context and addresses what the nonlinear function looks like and the nature of nonlinearity. To this end, we employ the methodology of the nonlinear flexible inference for the unknown functional relation. The estimation results based on the panel data set of 77 countries for the period 1982 ̃ 2011 confirm earlier findings for the nonlinear relationship between inequality and growth. In particular, we find that there exists a threshold value in the Gini Coefficient and when the level of inequality is greater than the threshold value, the reduction in inequality seems to enhance economic growth whereas while the level is less than the threshold value, the reduction in inequality appears to retard economic growth. The inclusion of the threshold specification appears to characterize the nonlinear relationship adequately and thus seems to capture the nature of nonlinearity.
Income inequality and economic growth: A re‐examination of theory and evidence
2018
We re-examine the theoretical and empirical relationship between income inequality and economic growth in an endogenous growth model with a at tax on income, distributive conflicts among agents and median voter dynamics. We show that when government spends tax revenue on the provision of public goods in the form of both production and consumption services, the theoretical relationship between inequality and economic growth is neither strictly positive nor strictly negative but that it is ambiguous. An empirical evaluation of the theoretical findings is done by applying a semi-parametric model on a sample of 55 low-income, lower-middle-income, upper-middle-income and high-income countries for the period 1980 to 2010. Results show that the relationship between income inequality and growth takes the form of an inverted-U shape in that income inequality initially has a positive impact on growth up to an average Gini coefficient threshold of 35.92 beyond which it negatively impacts on gr...