Abstract
This paper empirically investigates the effect of income and human capital inequality on economic growth in different regions of the world. In the estimation of a dynamic panel data model that controls for country-specific effects and takes into account the persistency of the inequality indicators, the results show a different effect of inequality on growth depending on the level of development of the region. Specifically, we find a negative effect of income and human capital inequality on economic growth, both in the sample as a whole and in the low and middle-income economies, an effect that vanishes or becomes positive in the higher-income countries.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Aghion, Ph., E. Caroli, García-Peñalosa, C.: Inequality and economic growth: the perspective of the new growth theories. J. Econ. Lit. 37, 1615–1660 (1999)
Alesina, A., Perotti, R.: Income distribution, political instability, and investment. Eur. Econ. Rev. 40, 1203–1228 (1996)
Alesina, A., Rodrik, D.: Distributive politics and economic growth. Q. J. Econ. 109, 465–490 (1994)
Alonso-Borrego, C., Arellano, M.: Symmetrically normalized instrumental-variable estimation using panel data. J. Bus. Econ. Stat. 17, 36–49 (1999)
Arellano, M., Bond, S. R.: Some test of specification for panel data: Monte Carlo evidence and application to employment equations. Rev. Econ. Stud. 58(2), 277–297 (1991)
Arellano, M., Bover, O.: Another look at the instrumental-variable estimation of error-components models. J. Econom. 68, 29–52 (1995)
Atkinson, A.: Distribution and growth in Europe—the empirical picture: a long-run view of the distribution of income. In: Mimeo, 4th ECFIN Annual Research Conference (2008)
Atkinson, A. B., Brandolini, A.: Promise and pitfall in the use of ’secondary’ data sets: income inequality in OECD countries as a case study. J. Econ. Lit. 39, 771–799 (2001)
Banerjee, A. V., Duflo, E.: Inequality and growth: what can the data say? J. Econ. Growth 8, 267–299 (2003)
Barro, R. J.: Inequality and growth in a panel of countries. J. Econ. Growth 5, 5–32 (2000)
Barro, R. J., Lee, J. W.: International data on educational attainment updates and implications. Oxf. Econ. Pap. 3, 541–563 (2001)
Benabou, R.: Inequality and growth. NBER Working Paper No. 5658 (1996)
Bertola, G.: Factor shares and savings in endogenous growth. Am. Econ. Rev. 83, 1184–1199 (1993)
Bertola, G.: Economic integration, growth, distribution: does the euro make a difference? this issue (2010)
Blundell, R., Bond, S.: Initial conditions and moment restrictions in dynamic panel data models. J. Econom. 87, 115–143 (1998)
Bond, S., Hoeffler, A., Temple, J.: GMM estimation of empirical growth models. CEPR Discussions Paper No. 3048 (2001)
Brandolini, A., Rossi, N.: Income distribution and growth in industrial countries. In: Tanzi, V., Chu, K.Y. (eds.) Income Distribution and High-Quality Growth, pp. 69–105. MIT, Cambridge (1998)
Castelló-Climent, A.: Channels through which human capital inequality influences economic growth. Mimeo, IEI-University of Valencia (2010)
Castelló, A., Doménech, R.: Human capital inequality and economic growth: some new evidence. Econ. J. 112(478), 187–200 (2002)
Castelló-Climent, A., Doménech, R.: Human capital inequality, life expectancy and economic growth. Econ. J. 118, 653–677 (2008)
De la Croix, D., Doepke, M.: Inequality and growth: why differential fertility matters. Am. Econ. Rev. 93(4), 1091–1113 (2003)
Deininger, K., Olinto, P.: Asset distribution, inequality, and growth. World Bank Policy Research Working Paper N° 2375 (2000)
Deininger, K., Squire, L.: A new data set measuring income inequality. World Bank Econ. Rev. 10, 565–591 (1996)
Deininger, K., Squire, L.: New ways of looking at old issues: inequality and growth. J. Dev. Econ. 57, 259–287 (1998)
Dollar, D., Kraay, A.: Growth is good for the poor. J. Econ. Growth 7, 195–225 (2002)
Easterly, W., Sewadeh, M.: Global Development Growth Data Base. World Bank (2002)
Forbes, K.: A reassessment of the relationship between inequality and growth. Am. Econ. Rev. 90(4), 869–887 (2000)
Galor, O., Tsiddon, D.: Technological progress, mobility, and economic growth. Am. Econ. Rev. 87(3), 363–382 (1997)
Galor, O., Zeira, J.: Income distribution and macroeconomics. Rev. Econ. Stud. 60, 35–52 (1993)
García-Peñalosa, C.: The economics of distribution and growth. Recent Issues and Experience, this issue (2010)
Griliches, Z., Hausman, J.: Errors in variables in panel data. J. Econom. 31, 93–118 (1986)
Hansen, L. P.: Large sample properties of generalized method of moments estimators. Econometrica 50, 1029–1054 (1982)
Hassler, J., Rodríguez-Mora, J. V.: Intelligence, social mobility, and growth. Am. Econ. Rev. 90(4), 888–908 (2000)
Kaldor, N.: A model of economic growth. Econ. J. 67, 591–624 (1957)
Knowles, S.: Inequality and economic growth: the empirical relationship reconsidered in the light of comparable data. J. Dev. Stud. 41(1), 135–159 (2005)
Li, H., Zou, H.: Income inequality is not harmful for growth: theory and evidence. Rev. Dev. Econ. 2(3), 318–334 (1998)
Luxemburg Income Study: Dataset available at http://www.lisproject.org (2007)
Moav, O.: Cheap children and the persistence of poverty. Econ. J. 115, 88–110 (2005)
Mookherjee, D., Ray, D.: Persistent inequality. Rev. Econ. Stud. 70, 369–393 (2003)
Panizza, U.: Income inequality and economic growth: evidence from American data. J. Econ. Growth 7, 25–41 (2002)
Perotti, R.: Growth, income distribution and democracy: what data say. J. Econ. Growth 1, 149–187 (1996)
Persson, T., Tabellini, G.: Is inequality harmful for growth? theory and evidence. Am. Econ. Rev. 84, 600–621 (1994)
Saint-Paul, G., Verdier, T.: Education, democracy and growth. J. Dev. Econ. 42, 399–407 (1993)
Sargan J.D.: The estimation of economic relationships using instrumental variables. Econometrica 26, 393–415 (1958)
Székely, M., Hilgert, M.: What’s behind the inequality we measure? An investigation using Latin American data. Research Department Working Paper N° 409, Inter-American Development Bank (1999)
UNU/WIDER-UNDP: World income inequality database, version 1.0, 12 September 2000. http://website1.wider.unu.edu/wiid/wiid.htm
Voitchovsky, S.: Does the profile of income inequality matter for economic growth?: Distinguishing between the effect of inequality in different parts of the income distribution. J. Econ. Growth 10, 273–296 (2005)
Author information
Authors and Affiliations
Corresponding author
Additional information
I am grateful to Pedro Albarran, Rafael Doménech, Javier Ferri, three anonymous referees and the editors, Andrea Brandolini and Cecilia García-Peñalosa, for their comments and suggestions, I also thank participants at the 4th ECFIN Annual Research Conference: Growth on Income Distribution in an Integrated Europe: Does EMU Make a Difference (Brussels, October 2007) for helpful discussions.
Rights and permissions
About this article
Cite this article
Castelló-Climent, A. Inequality and growth in advanced economies: an empirical investigation. J Econ Inequal 8, 293–321 (2010). https://doi.org/10.1007/s10888-010-9133-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10888-010-9133-4