Inequality and Growth in a Panel of Countries

“However, recent formal econometric studies 21 (such as Barro (2000)) have been unable to Þnd a robust relation between per capita income and inequality.”

“There is an intensive dispute in economics about the relationship between income distribution and economic growth (see BÉNABOU 1996 for a survey and BARRO 2000 for a differentiated analysis).”

“For example, Barro (2000: 6) writes, “If the mean income in an economy exceeds the median income, then a system of majority rule voting tends to favor redistribution of resources from rich to poor.” However, a multidimensional model of democratic politics may be more appropriate to issues of income distribution. A cla…”

“Acemoglu et al. (2001, 2002), and Acemoglu and Johnson (2005) show that qualities of institutions have a stronger effect 2 See Soto (1989, 2000), Barro (1997, 2000), Schleifer and Vishney (1994), Knack and Keefer (1995), Mauro (1995), Sachs and Warner (1995), Frye and Shleifer (1997), Johnson et…”

“8Q3 –0.4Q4, where Q1,Q2,Q3, and Q4 are the shares of the first (i.e., poorest), second, third and fourth quintiles respectively (Barro, 2000, p. 15).”

“The relation between personal income inequality and growth has been a field of ongoing controversy (Barro, 2000).”

“…to growth, it enables inequality to have growth or level effects depending 1 Recent studies that investigate the relationship between inequality and growth include Barro (2000), Forbes (2000), Panizza (2002), Banerjee and Duflo (2003), Easterly (2007), Berg et al. (2012), and Halter et al. (2014).”

“These results confirm the important role of gross income inequality on the determination of fiscal policy outcomes pointed out by Bénabou (2000). Importantly, the results indicate that increasing distributive expenditure in high income countries with a well established welfare state (our sample) reduces income inequal…”

“For this reason, the subject has become one of the most discussed topics in the social sciences (e.g., Williamson and Lindert, 1980; Persson and Tabellini, 1994; Benabou, 1996; Barro, 2000; Bassino, 2006); in particular the debate on the measurement and interpretation of recent trends in global inequality—Is it still…”

“Similar results were found by Morley (2000), who noted that while the positive sign does not concur with the theory, it supports the assertion that inequality in the region widened after the implementation of reforms (Berry, 1998; Bulmer-Thomas, 1996). Openness, defined as the trade ratio(17), also exacerbates inequal…”

“…GMM Acceptance Sylwester (2000) Fiscal policy 52 countries 1960-1992 Crosssection Income Gini coefficient Deininger and Squire (1996) 3SLS Acceptance (short-run) Rejection (long-run) Barro (2000) Saving 84 countries 1965-1995 Panel Income Gini coefficient Deininger and Squire (1996) OLS Rejection”

“They include exit fees in IT services outsourcing (Barrar and Gervais 2007), search costs (Hoque and Lohse 1999), learning costs (Cabral and Riordan 1997), equipment costs (Teo 2003), installation and start-up costs (Hawley 1997), and financial risk (Benaroch 2002). Eaton and Kortum (1999) posited that the expected le…”

“For example, work by Barro (2000) and Lundberg and Squire (2003) suggests that greater openness to trade (something to be welcomed when one has a growth objective in mind) would go along with more inequality.”

“As mentioned, the impact of inequality on growth is also likely to vary between countries depending on their level of development (Partridge 1997; Barro 2000).”

“…may be good for growth in that the greater the level of inequality, the higher is the saving rate and hence also the rate of investment and economic growth.3 Unfortunately for this line of thought, Barro (2000) finds no empirical evidence of a link between inequality and investment, but we do.”

“The specific gathering of data took place in 1981 (1981-1984), 1990 (1989-1993), 1995 (1994-1999), 2000 (1999-2004), 2005 (2005-2007).”

“Uslaner (2010). On income inequality, see, e.g., Aghion et al. (1999), Barro (2000 ) a nd Knowles (2005).”

“Unemployment benefit bt in period t is assumed as follows: bt = ψwt, (8) where ψ (0 ≤ ψ < 1) is a constant.”

“These results are consistent with Shahbaz (2010) in case of Pakistan, but contradictory with Barro (2000) who reported negative impact of economic growth on income inequality in low income countries.”

“Barro (2000) has used a panel data approach to investigate 100 countries for the period 1960-1990.”

“Evidence from cross-sectional regressions pointing towards a negative relationship between initial levels of inequality and subsequent growth in developing countries (Barro 2000, Vollrath 2007) is increasingly substantiated at the micro-level.”

“In particular, Barro and Sala-i-Martin (1991) suggest the following growth equation: ( ) t t t u y t e c y y T + − − = ⎟⎟ ⎠ ⎞ ⎜⎜ ⎝ ⎛ ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ −”

“Finally, openness – as measured by the ratio of exports and imports to GDP – tends to make income distribution more unequal, as found by Barro (2000) and Calderon and Serven (2004 and 2008).”

“…Pontusson et al. (2002) Baccaro (2011) Gissinger and Gleditsch (1999) Quinn (1997) Bandelj and Mahutga (2010) Gozgor and Ranjan (2017) Rama (2002) Barro (2000) Gourdon et al. (2008) Reuveny and Li (2003) Beck et al. (2007) Gustafsson and Johansson (1999) Roine et al. (2009) Beckfield (2006) Ha…”

“This point has been made both theoretically, by Loury (1981), Galor and Zeira (1993), Banerjee and Newman (1993), Aghion and Bolton (1997), and others, and empirically by Alesina and Rodrik (1994), Persson and Tabellini (1994), Perotti (1996) and Barro (2000).”

“…of market distortions deriving from Forbes (2000) that is related to the degree of integration in the world market. iii) Income inequality could lead to lower investments in education, as particularly poor people may not invest as much due to credit constraints (e.g. Perotti, 16 1993; Barro, 2000).”

“First, there may be immiserizing growth (Bhagwati 1958).”

“inequality increasing) when trade takes place horizontally among advanced countries (Lundberg and Squire, 2003; Barro, 2000).”

“In a Keynesian setting, as the rich save more than the poor, more inequality would mean more aggregate savings, investments and long-run growth (Barro, 2000).”

“More recent studies have used this dataset, and have found that the Kuznets curve continues to hold in the cross-section or pooled results (Deininger and Squire, 1998; Barro, 2000).”

“Barro (2000) uncovers a nonlinear inequality-growth nexus, with inequality encouraging growth in rich economies but slowing it in poor countries. Similarly, Lin, Huang, Kim, and Yeh (2009) determine that an increase in inequality accelerates growth in high-income countries but hinders growth in low-income ones. Rather…”

“The vast majority of the reduced-form estimates find that inequality has a negative effect on growth (i.e. Persson and Tabellini 1994; Perotti 1996; Barro 2000).”

“(2014); Binatli (2012); Voitchovsky (2005); Barro (2000)), while others find no relationship (e.g., Neves et al. (2012)).”

“In addition, democracy is not associated with income inequality, as shown by Barro (1999). Therefore, democracy seems to be a good instrument for corruption.”

“7 In our case, this is concerning because income distribution is persistent ( Barro 2000 ).”

“Although research on the distributive consequences of globalization have dealt primarily with trade (Beyer et al., 1999; Harrison and Hanson, 1999; and Barro, 2000), there appears to be an impact of FDI in¯ows on income distribution in developing countries as well.”

“There is agreement in the development literature that economic growth is the strongest driver of long-term poverty reduction (Barro, 2000; L (cid:1) opez, 2004; Kraay, 2006).”

“In particular, Alesina and Perotti (1996), Barro (2000) and Castelló (2010) state that the channels predicting a negative relationship may be stronger in less developed countries, as in these countries constraints to human capital accumulation, political instability and social unrest are more…”

“True, there are also studies that find that inequality leads to faster growth (Li and Zou, 1998; Forbes 2000) and studies that find no relationship at all (Barro, 2000), but in general this is usually the case of studies that focus on the short term impact of changes in inequality on growth.”

“For example, it has long been shown that rising income inequality can have a negative effect on economic growth, while increasing levels of education, on the other hand, exert a sustainable positive impact on long-term growth (Barro, 2000).”

“Observations (five-year averages) 508 405 508 405 Countries 128 97 128 97 Sources: Barro and Lee 2012; IMF, World Economic Outlook (WEO); Lane and Milesi-Ferretti 2012; Ostry, Berg, and Tsangarides 2014; Penn World Tables; Polity IV; UNDP Human Development Report; World Bank, World Development Indicators; and IMF staf…”

“…2000; Gradstein et al., 2001; Savoia et al., 2010), the population growth rate (Rodgers, 1983; Lee, 2001), the degree of economy openness (Barro, 2000; Dollar and Kraay, 2002; Wade, 2004; Winters et al., 2004) and the level of human capital (Knight and Sabot, 1983; De Gregorio and Lee,…”

“Subsequent works using fixed-effects and random-effects panel and 3SLS models found either positive or non-significant coefficients (e.g. Li and Zou, 1998; Barro, 2000).”

“…often referred to as the Kuznets curve) can also be possible as a result of the structural transformation of economies at different stages of development (with possibly higher levels of inequality at intermediate levels of GDP per capita, when the economy begins to industrialise; see Barro, 2000).”

“14 is good for incentives and therefore good for growth,16 and also differs from the empirical studies of Partridge (1997), Li and Zou (1998), Forbes (2000), Barro (2000), Lundberg and Squire (2003), and Castelló-Climent (2010).”

“However, estimating growth models by using only annual data may result in two biases; the problem of potential endogenity among covariates and uncounted country specific effects (Sala & Trivin, 2014; Barro, 2000, 1991; Beck, 2000).”

“Finally, Barro (2000) reveals significantly higher levels of inequality both in Latin America and in Africa, even when controlling for other factors mentioned above.”

“Table 1 provides descriptive statistics on the Gini values of the countries with two or more observations in the sample (of which 9 are in Sub Saharan Africa). source: Barro (1999) Around the world income inequality decreased in the 1960’s and 1970’s, while income inequality rose in the 1980’s.”

“Barro (2000) and Lundberg and Squire (2003) suggest that greater openness to trade would go along with higher inequality.”

“Putting the two cases together, finally, Proposition 5 can also be related to the empirical findings of Barro (2000) that inequality tends to be negatively associated with subsequent growth in poor countries, but positively associated with it in richer ones.”

“Barro [3] uses dummy variables for different reference units in his estimations.”