Skip to main content

Advertisement

SpringerLink
Log in

The elusive inequality-economic growth relationship: are there differences between cities and the countryside?

  • Original Paper
  • Published:
The Annals of Regional Science Aims and scope Submit manuscript

Abstract

The inequality-economic growth debate remains unsettled. For instance, classical theories point to the importance of incentives in increasing growth, but recent theories stress social and political disruptions as causal factors in inhibiting growth. Conflicting empirical evidence has not helped, with contradictory findings arising when employing different samples and alternative econometric techniques. This study re-examines the linkage by contending that it is not surprising that past research uncovered conflicting findings. For example, the transmission mechanism through which inequality/economic incentives influence economic growth can be affected by factors such as urbanization and social cohesion. Using US county data over the 1990s, the empirical results suggest that the econometric results are unstable when considering weighted regressions over the entire sample. Yet, consistent with our hypothesized relationships, when separately considering metropolitan and nonmetropolitan samples, there is a positive inequality-growth link in the urban sample, with the opposite holding in the nonmetro case. Implications for both the inequality-growth literature and for public policy are discussed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Aghion P, Bolton P (1992) Distribution and growth in models with imperfect capital markets. Eur Econ Rev 36:603–612

    Article  Google Scholar 

  • Alesina A, Baqir R, Easterly W (1997) Public goods and ethnic divisions. NBER Working Paper No. 6009

  • Alesina A, Perotti R (1994) The political economy of economic growth: a critical survey of the literature. World Bank Econ Rev 3:351–371

    Article  Google Scholar 

  • Alesina A, Rodrik D (1994) Distributive politics and economic growth. Q J Econ 109:465–490

    Article  Google Scholar 

  • Banerjee A, Newman A (1991) Risk bearing and the theory of income distribution. Rev Econ Stud 58:211–235

    Article  Google Scholar 

  • Barkley DL (1988) The decentralization of high technology manufacturing to non-metropolitan areas. Growth Change 19:13–30

    Article  Google Scholar 

  • Barro RJ (2000) Inequality and growth in a panel of countries. J Econ Growth 5:5–32

    Article  Google Scholar 

  • Bell L, Freeman RB (2001) The incentive for working hard: explaining hours worked differences in the US and Germany. Labour Econ 8:181–202

    Article  Google Scholar 

  • Benhabib J, Rustichini A (1996) Social conflict and growth. J Econ Growth 1:129–146

    Article  Google Scholar 

  • Blank RM (2005) Poverty, policy, and place: how poverty policies to alleviate poverty are shaped by local characteristics. Int Reg Sci Rev 28:441–464

    Article  Google Scholar 

  • Bleaney M, Nishizama A (2004) Income inequality and growth–does the relationship vary with the income level? Econ Lett 84:349–355

    Article  Google Scholar 

  • Borjas GJ, Bronars SG, Trejo SJ (1992) Self-selection and internal migration in the United States. J Urban Econ 32:159–185

    Article  Google Scholar 

  • Carrión-Flores C, Irwin EG (2004) Determinants of residential land-use conversion and sprawl at the rural-urban fringe. Am J Agric Econ 86:889–904

    Article  Google Scholar 

  • Castello A, Domenech R (2002) Human capital inequality and economic growth: some new evidence. Econ J 112:C187–C200

    Article  Google Scholar 

  • Conley TG (1999) GMM estimation with cross sectional dependence. J Econ 92:1–45

    Google Scholar 

  • de la Croix D, Doepke M (2003) Inequality and growth: why differential fertility matters. Am Econ Rev 93(4):1091–1113

    Article  Google Scholar 

  • Dev Bhatta S (2001) Are inequality and poverty harmful for economic growth: evidence from the metropolitan areas of the United States. J Urban Affairs 23:335–359

    Article  Google Scholar 

  • Diamond CA, Simon CJ (1990) Industrial specialization and the returns to labor. J Labor Econ 8:175–201

    Article  Google Scholar 

  • Dollar D, Kraay A (2002) Growth is good for the poor. J Econ Growth. 7:195–225

    Article  Google Scholar 

  • Easterly W, Levine R (1997) Africa’s growth tragedy: policies and ethnic divisions. Q J Econ 112:1203–1250

    Article  Google Scholar 

  • Edin PA, Topel R (1997) Wage policy and restructuring: the swedish labor market since 1960. In: Freeman RB, Topel R, Swedenborg B (eds) The welfare state in transition, reforming the swedish model. University of Chicago Press, Chicago, pp 155–201

    Google Scholar 

  • English DBK, Marcouiller DW, Ken Cordell H (2000) Tourism dependence in rural America: estimates and effects. Soc Nat Resour 13:185–202

    Article  Google Scholar 

  • Forbes KJ (2000) A reassessment of the relationship between inequality and growth. Am Econ Rev 90:869–887

    Article  Google Scholar 

  • Glaeser EL, Laibson D, Sacerdote B (2000) The economic approach of social capital. National Bureau of Economic Research Working Paper, 7728

  • Glaeser EL, Maré DC (2001) Cities and skills. J Labor Econ 19:316–342

    Article  Google Scholar 

  • Griliches Z, Mairesse J (1984) Productivity and R&D at the firm level. In: Griliches Z (ed) R&D, patents, and productivity. The University of Chicago Press, Chicago, pp. 339–374

    Google Scholar 

  • Griliches Z, Mairesse J (1995) Production functions: the search for identification. Working Paper No. 5067, National Bureau of Economic Research

  • Hauk WR Jr, Wacziarg R (2004) A Monte Carlo study of growth regressions. Technical Working Paper 296, National Bureau of Economic Research

  • Helliwell JF (2005) Well-being, social capital and public policy: what’s new? National Bureau of Economic Research Working Paper 11807

  • Higgins MJ, Levy D, Young AT (2006) Growth and convergence across the U.S.: evidence from county-level data. Rev Econ Statisti (Forthcoming)

  • Kaldor N (1956) Alternative theories of distribution. Rev Econ Stud 23:83–100

    Google Scholar 

  • Knack S, Keefer P (1997) Does social capital have an economic payoff? A cross-country investigation. Q J Econ 112:1251–1288

    Article  Google Scholar 

  • Kwang-Koo K, Marcouiller DW, Deller SC (2005) Natural amenities and rural development: understanding spatial and distributional attributes. Growth Change 36:273–297

    Article  Google Scholar 

  • Kuznets S (1955) Economic growth and income inequality. Am Econ Rev 45:1–28

    Google Scholar 

  • Massey DS (1996) The age of extremes: concentrated affluence and poverty in the twenty-first century. Demography 33:395–412

    Article  Google Scholar 

  • McGranahan DA (1999) Natural amenities drive rural population change. Food and Rural Economics Division, Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report 781

  • Moomaw RL, Alwosabi MA (2004) An empirical analysis of competing explanations of urban primacy evidence from Asia and the Americas. Ann Reg Sci 38:149–171

    Article  Google Scholar 

  • Moretti E (2004) Workers’ education, spillovers, and productivity: evidence from plant-level production functions. Am Econ Rev 94:656–690

    Article  Google Scholar 

  • Okun AM (1975) Equality and efficiency: the big trade-off. Brookings Institution, Washington

    Google Scholar 

  • Panizza U (2002) Income inequality and economic growth: evidence from American data. J Econ Growth 7:25–41

    Article  Google Scholar 

  • Partridge MD (1997) Is inequality harmful for growth? Comment. Am Econ Rev 87:1019–1032

    Google Scholar 

  • Partridge MD (2005) Does income distribution affect US state economic growth? J Reg Sci 45: 363–394

    Article  Google Scholar 

  • Partridge MD (2006) The relationship between inequality and labor market performance: evidence from US. States. J Labor Res 27:1–20

    Google Scholar 

  • Partridge MD, Rose Olfert M, Alasia A (Forthcoming) Agglomeration or amenities: Canadian cities as regional engines of growth. Can J Econ

  • Partridge MD, Rickman DS (2006) The geography of American poverty: is there a role for place based policy? W.E. Upjohn Employment Institute, Kalamazoo

  • Persson T, Tabellini G (1994) Is inequality harmful for growth? Am Econ Rev 84:600–621

    Google Scholar 

  • Roback J (1982) Wages, rents, and the quality of life. J Polit Econ 90:1257–1278

    Article  Google Scholar 

  • Rosenthal SS, Strange WC (2003) Evidence on the nature and sources of agglomeration economies. Prepared for the Handbook of urban and regional economics, vol 4. http:// www.rotman.utoronto.ca/~strange. cited November 22, 2005

  • Rosenthal SS, Strange WC (2005) The attenuation of human capital spillovers: a manhanttan skyline approach. University of Toronto Mimeo. http://www.rotman.utoronto.ca/~wstrange

  • Rupasingha A, Goetz SJ, Freshwater D (2002) Social and institutional factors as determinants of economic growth: evidence from the United States counties. Papers Reg Sci 81:1251–1288

    Article  Google Scholar 

  • Siebert H (1998) Commentary: economic consequences of income inequality. In: Symposium of the federal reserve bank of Kansas City on income inequality. Issues Policy Options 265–281

  • Smoluk HJ, Andrews BH (2005) A prerequisite for meaningful state economic performance comparisons: adjusting for population density. Ann Reg Sci 39:253–272

    Article  Google Scholar 

  • US Department of Agriculture (2004) Rural population and migration: rural population change and net migration. http://www.ers.usda.gov/Briefing/Population/PopChange/

  • Voitchovsky S (2005) Does the profile of income inequality matter for economic growth? distinguishing between the effects of inequality in different parts of the income distribution. J Econ Growth 10:273–296

    Article  Google Scholar 

  • Welch F (1999) In defense of inequality. Am Econ Rev 89:1–17

    Article  Google Scholar 

  • Wheaton WC, Lewis MJ (2002) Urban wages and labor market agglomeration. J Urban Econ 51:542–562

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Agricultural Economics, University of Saskatchewan, Saskatoon, SK, S7N 5A8, Canada

    Belal N. Fallah

  2. Department of Agricultural, Environmental, and Development Economics, The Ohio State University, 2120 Fyffe Road, Columbus, OH, 43210, USA

    Mark Partridge

Authors
  1. Belal N. Fallah
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mark Partridge
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Mark Partridge.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Fallah, B.N., Partridge, M. The elusive inequality-economic growth relationship: are there differences between cities and the countryside?. Ann Reg Sci 41, 375–400 (2007). https://doi.org/10.1007/s00168-006-0106-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00168-006-0106-2

JEL Classifications

Search

Navigation