Abstract
This paper uses heterogeneous panel cointegration techniques to estimate the long-run effect of income inequality on per-capita income for 46 countries over the period 1970–1995. We find that inequality has a negative long-run effect on income, both for the sample as a whole and for important sub-groups within the sample (developed countries, developing countries, democracies, and non-democracies). The effect is economically important, with a magnitude about half as high as the magnitude of an increase in the investment share.
References
Alesina, A., Rodrik, D.: Distributive politics and economic growth. Q. J. Econ. 109, 465–490 (1994)
Atkinson, A.B.: On the measurement of inequality. J. Econ. Theory 2, 244–263 (1970)
Attanasio, O.P., Picci, L., Scorcu, A.E.: Saving, growth, and investment: a macroeconomic analysis using a panel of countries. Rev. Econ. Stat. 82, 182–211 (2000)
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)
Breitung, J.: A parametric approach to the estimation of cointegrating vectors in panel data. Econom. Rev. 24, 151–173 (2005)
Chambers, D., Krause, A.: Is the relationship between inequality and growth affected by physical and human capital accumulation? J. Econ. Inequal. doi:10.1007/s10888-009-9111-x. (2010)
Clarke, G.R.G.: More evidence on income distribution and growth. J. Dev. Econ. 47, 403–427 (1995)
Davis, L.S.: Explaining the evidence on inequality and growth: informality and redistribution. B.E.J. Macroecon. (Contributions) 7, Issue 1, Article 7. (2007)
de la Croix, D., Doepke, M.: Inequality and growth: why differential fertility matters. Am. Econ. Rev. 93, 1091–1113 (2003)
Deininger, K., Squire, L.: New ways of looking at old issues: inequality and growth. J. Dev. Econ. 57, 259–287 (1998)
Ericsson, N.R., Irons, J.S., Tryon, R.W.: Output and inflation in the long-run. J. Appl. Econ. 16, 241–253 (2001)
Forbes, K.J.: A reassessment of the relationship between inequality and growth. Am. Econ. Rev. 90, 867–889 (2000)
Frank, M.W.: Inequality and growth in the United States: evidence from a new state-level panel of income inequality measures. Econ. Inq. 47, 55–68 (2009)
Galbraith, J.K.: Global inequality and global macroeconomics. J. Policy Model. 29, 587–607 (2007)
Galbraith, J.K.: Inequality, unemployment and growth: new measures for old controversies. J. Econ. Inequal. 7, 189–206 (2009)
Galor, O., Moav, O.: From physical to human capital accumulation: inequality and the process of development. Rev. Econ. Stud. 71, 1001–1026 (2004)
Golden, C., Katz, L.: The race between education and technology. Harvard University Press, Cambridge (2008)
Guest, R., Swift, R.: Fertility, income inequality, and labor productivity. Oxford Econ. Pap. 60, 597–618 (2008)
Im, K.S., Pesaran, M.H., Shin, Y.: Testing for unit roots in heterogeneous panels. J. Econom. 115, 53–74 (2003)
Johansen, S.: Statistical analysis of cointegrating vectors. J. Econ. Dyn. Control 12, 231–254 (1988)
Johansen, S.: Modelling of cointegration in the vector autoregressive model. Econ. Model. 17, 359–373 (2000)
Jones, C.: Time series tests of endogenous growth models. Q. J. Econ. 110, 495–525 (1995)
Knowles, S.: Inequality and economic growth: the empirical relationship reconsidered in the light of comparable data. J. Dev. Stud. 41, 135–159 (2005)
Larsson, R., Lyhagen, J., Löthegren, M.: Likelihood-based cointegration tests in heterogeneous panels. Econom. J. 4, 109–142 (2001)
Levin, A., Lin, C.-F., Chu, C.-S.J.: Unit root test in panel data: asymptotic and finite-sample properties. J. Econom. 108, 1–24 (2002)
Lundberg, M., Squire, L.: The simultaneous evolution of growth and inequality. Econ. J. 113, 326–344 (2003)
Mankiw, N.G., Romer, D., Weil, D.N.: A contribution to the empirics of economic growth. Q. J. Econ. 107, 407–437 (1992)
Nair-Reichert, U., Weinhold, D.: Causality tests for cross-country panels: a new look at FDI and economic growth in developing countries. Oxford Bull. Econ. Statist. 63, 153–171 (2001)
Panizza, U.: Income inequality and economic growth: evidence from American data. J. Econ. Growth 7, 25–41 (2002)
Pedroni, P.: Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bull. Econ. Statist. 61, 653–670 (1999)
Pedroni, P.: Purchasing power parity tests in cointegrated panels. Rev. Econ. Stat. 83, 727–731 (2001)
Pedroni, P.: Social capital, barriers to production and capital shares: implications for the importance of parameter heterogeneity from a nonstationary panel approach. J. Appl. Econ. 22, 429–451 (2007)
Perotti, R.: Growth, income distribution, and democracy: what the data say. J. Econ. Growth 1, 149–187 (1996)
Persson, T., Tabellini, G.: Is inequality harmful for growth? Am. Econ. Rev. 84, 600–621 (1994)
Pesaran, M.H.: A simple panel unit root test in the presence of cross-section dependence. J. Appl. Econometrics 22, 265–312 (2007)
Pesaran, M.H., Smith, R.: Estimating long-run relationships from dynamic heterogeneous panels. J. Econometrics 68, 79–113 (1995)
Reinsel, G.C., Ahn, S.K.: Vector autoregressive models with unit roots and reduced rank structure: estimation, likelihood ratio test and forecasting. J. Time Anal. 13, 353–357 (1992)
Voitchovsky, S.: Does the profile of income inequality matter for economic growth? J. Econ. Growth 10, 273–296 (2005)
Wan, W., Lu, M., Chen, Z.: The inequality–growth nexus in the short and long run: empirical evidence from China. J. Comp. Econ. 34, 654–667 (2006)
Author information
Authors and Affiliations
Corresponding author
Additional information
We are grateful to two anonymous referees for excellent suggestions that considerably improved this paper. Sebastian Vollmer acknowledges financial support from the German Academic Exchange Service and the German Research Foundation (grant VO 1592/3-1).
Rights and permissions
Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
About this article
Cite this article
Herzer, D., Vollmer, S. Inequality and growth: evidence from panel cointegration. J Econ Inequal 10, 489–503 (2012). https://doi.org/10.1007/s10888-011-9171-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10888-011-9171-6
Keywords
- Inequality
- Growth
- Panel cointegration
JEL Classification
- O11
- O15
- C23