Inequality and Growth in a Panel of Countries

“Also, much of the empirical work that examines the effect of income inequality on economic growth argues that inequality affects growth through its effect on taxes and redistribution, (Perotti 1992, Persson and Tabellini 1994, Barro 2000, Milanovic 2000, among others).”

“Despite the underlying complexity of the relationship between inequality and growth and the existence of some inconclusive evidence on the sign and direction of this relationship, empirical research generally confirms that inequality tends to undermine economic growth and poverty alleviation efforts in developing and…”

“The insignificance of income inequality in growth regressions has been further underlined by panel data studies that report hardly any or even a slightly positive effect of income inequality on growth (Barro 2000, Forbes 2000).”

“Similar to various studies (e.g., Barro (2000)) we find that the Kuznets curve does not explain the bulk of variations in inequality across countries or over time.”

“…age distribution) and their effects on growth can be tested with our measures of the distribution of human capital, for example Banerjee and Newman (1993), Barro (2000), Chen (2003), Benabou (1996a,b), Benhabib and Spiegal (1994), Galor and Tsiddon 60We do this with and without population weights.”

“Third, several studies find nonlinear relationship between trade openness and income inequality (Aghion and Howitt, 1998; Barro, 2000; Bowman, 1997; De Santis, 2002; Feenstra and Hanson, 1996; Figini and Gorg, 1999; Ghosh et al., 2000; Mahler et al., 1999, and Savvides, 1998).”

“…long-term growth While it is commonly agreed that some degree of inequality is necessary to provide incentives for investment and economic growth (Barro, 2000; Forbes, 2000), there is increasing evidence that high levels of income inequality are detrimental to the pace and sustainability of…”

“There is evidence suggesting that income inequality holds back growth in low-income countries (Barro 2000).”

“It is a model of society sketched by Bénabou (2000) where high inequality, combined with credit constraint and influence of the rich on the political process, results in a steady-state of low government spending and persistent high inequality.23 This does not mean that none of the economic benefits…”

“…is negatively associated with growth.2 This consensus has recently been challenged by Deininger and Squire (1998), Li and Zou (1998), Forbes (2000), Barro (2000) and others who find non-robust or even positive associations, suggesting that income inequality might be good for growth, especially in…”

“Barro 2000 ), the initial level of development (eg.”

“[7] Barro, R.”

“22 instrumenting all potentially endogenous variables using 2 and 3 year lags as instruments and estimating via two stage least squares (see also Barro, 2000). In the case of ethnic segregation which is time invariant we use an instrument proposed and motivated by Alesina and Zhuruvskaya (2011) which relates the spati…”

“While earlier evidence suggested a negative tradeoff between growth and inequality, more recent studies have tended to support a positive relationship; see e.g. Barro (2000), Forbes (2000), and Lundberg and Squire (2003).”

“Intrans-itioning and post-DT populations, by contrast, wealthy and high status people typically have lower fertility than poorer and lower status people [1,3] and wealth inequality is temporarily lower than in pre-DT contexts [4,6,14].”

“…literature, on the other hand, some scholars, such as Dollar and Kraay (2004), argue that globalization benefits the poor, while others like Barro (2000) and Milanovic (2005) show that greater openness leads to an increase in inequality, especially in countries with a higher level of…”

“8 Barro (2000) found a negative correlation for poor countries (i.e. GDP per capita below US$2070 (1985 dollars)) but a positive one for rich countries.”

“Furthermore, it has been previously shown that a greater openness to trade has an increasing effect on inequality in poor countries (Barro, 2000; Milanovic, 2005).”

“3 This finding is consistent with Barro (2000), which suggests that trade openness could increases inequality in poor countries.”

“5 For an investigation of the causality between education and inequality at the macroeconomic level see Sullivan and Smeeding (1997), Barro (2000), De Gregorio and Lee (2002) and Hartog et al. (2004).”

“This view is expressed in the study of Barro (2000) whereby the authors argue that the higher the level of education in the population, the lower the income inequality.”

“Several other studies (for example Jha 1996, Eusufzai 1997 and Barro 2000) have also confirmed the hypothesis.”

“Also, in column (8), the coefficient of IGOVSH becomes significant at the 10% and has the expected sign (—).”

“Barro (2000) finds a positive relationship between trade openness and income inequality, while Calderon and Chong (2001) and Dollar and Kray (2002) do not find any significant relationship.”

“To build these trends we draw on stylized facts from the literature, in particular the convergence assumption (Barro and Sala-i-Martin, 1992) and two empirical analyses on economic convergence: one investigating the past trends, by Maddison (1995), and the other looking at future trends, by Martins et al.”

“19 This latter result is in line with Barro (2000), who suggests that inequality is negatively correlated with growth in low-income countries, but positively in high-income countries.”

“Then (5) implies that Γ =  ()  (7) The model would be of the Ak type if  = 0; The external effect, , would then not matter for growth, since it is  that matters.”

“Formally, for any individual i of generation t + 1 and innate talent Aj (where Aj can either be AL or AH), human capital is given by: ht+1,i = et H δ tA j (3)”

“…Benhabib 2003), as well as empirical studies, the majority of which are aimed at supporting or refuting the Kuznets (1955) inverted-U hypothesis that inequality rises during early stages of development and declines in later stages (Barro 2000; Lundberg and Squire 2003; Banerjee and Duflo 2003).”

“However, Barro (2000) argued that income inequality has a significant negative effect on economic growth in less developed countries, but a positive impact in rich countries.”

“With another methodology based on a threestage least squares estimator procedure, Barro (2000) also finds no clear relationship between inequality and growth.”

“Studies show that economic growth and the GDP per capita level are related to globalization (see Dreher 2006a; Dreher et al. 2008) and to the development of the income distribution over time (see Barro 2000; Forbes 2000; Berg et al. 2012; Ostry et al. 2014).”

“In the context of public pensions and labor supply-related responses, it is discussed if they induce early-retirement (Gruber and Wise (1998); Blundell et al. (2002)).”

“According to Barro (2000), the effect of inequality on growth depends on the level of income of the country: panel evidence suggests growth-enhancing effects of inequality in richer countries (GDP per capita: above $2,000, 1985 US dollars) and negative effects in poorer countries (below $2,000).”

“This is especially relevant for poorer countries as it allows at least part of the population to accumulate the minimum required to invest in education and entrepreneurship (Barro, 2000; Ostry et al., 2014).”

“This is similar to the estimations in a number of studies (Ahluwalia, 1976; Jha, 1996; Mbaku, 1997; Barro, 2000).”

“Such an inverted U-pattern is empirically supported by Williamson (1965), Brülhart and Torstensson (1996), and Barro (2000). While regional inequality is naturally understood as income inequality, most existing theoretical works are based on firm location (e.g., Krugman and Venables 1990, 1995; Venables 1996; Puga and…”

“Barro (2000), Beck et al. (2007) and Ang (2010) document that the increase in growth rate of per capita helps in alleviating the income inequality.”

“Barro (2000) considers a larger sample of countries than Forbes (2000) and finds a positive (negative) relationship between growth and inequality in developed (developing) countries.”

“The question of inequality and growth has been studied separately from poverty as for example in Barro (2000), where one finds that the Kuznets curve is ‘re-invented’ as an analytical device for representing the relationship between inequality and growth over the 'poverty to richness' cycle.”

“Thus, when a more disaggregated education measure is chosen, higher education for males has a positive impact on growth (Barro, 2000).”

“High inequality will cause poor individuals to turn to high-return crime rather than low-income market activities (Kelly, 2000), and it will also lead to increased political instability (Acemoglu & Robinson, 2001)13 and activities that will disturb the peace of society and thus waste governments’ resources, which coul…”

“, 1998; Gustafsson and Johansson, 1999; Barro, 2000; Vanhoudt, 2000 and Roine et al., 2009, for world samples, Odedokun and Round, 2004, for Africa, and recently Castells-Quintana and Larrú, 2014, for Latin America). These studies have relied on international comparisons using data at the national level. The paper als…”

“Corruption perceptions index for 2010 is taken from Transparency International (2011). It ranks countries according to their perceived levels of public sector corruption on a scale of 0 (highly corrupt) to 10 (very clean).”

“For example, in nations with a Gross Domestic Product below ∼$2,000/person/year (in 1985), income inequality correlates with lower rates of economic growth (Barro, 2000).”

“Inequality was seen as necessary to spur growth by providing incentives, increasing investment, and allowing the accumulation of a minimum of assets necessary for entrepreneurial activities and education (Barro, 2000).”

“In contrast, other studies fi nd a positive, or a more ambiguous, relationship; see e.g. Li and Zou (1998), Forbes (2000), and Barro (2000).”

“In different papers many different, even contradictory, forms of this relationship have been specified, including both inverted (Barro, 2000) and upright (Ram, 1997) “U” relationships between inequality and income levels, and both downward (Deininger and Squire, 1998) and upward–sloping (Forbes, 2000) relationships be…”

“In fact, the findings of this article support models based on the median voter theorem as I find that more inequality leads to more support for left- 4 See, for instance, Persson and Tabellini (1994); Banerjee and Duflo (2003); Barro (2000).”

“Barro (2000), for instance, attributes changes in income inequality to trade expansion, Easterly and Fischer (2001) focus on inflation, Bourguignon and Verdier (2000) underline democracy, Beck et al. (2007) emphasize financial development, and Rodrı́guezPose and Tselios (2009) stress education.”

“In turn, Barro (2000) found that inequality may affect growth in different directions depending on the country's level of income, while Banerjee and Duflo (2003) concluded that the response of growth to inequality changes has an inverted U- shape.”

“However, based on inequality data compiled by Deininger and Squire (1996) that consensus has been challenged by e.g. Li and Zou (1998), Forbes (2000), or Barro (2000) who find a non-robust or even positive association, especially for rich countries.”

“Further, education (capture the initial economic growth effect) has a positive effect on city’s economic growth (Barro, 2000), as the accumulation of human capital can create a pool of skilled labour force by attracting firms and residents.”

“Barro (2000), based on cross-national data, discovered a positive and significant effect of the trade openness ratio on income inequality.”