Inequality and Growth in a Panel of Countries

“Barro (2000) and Castelló-Climent (2010). Here we focus only on OECD countries (excluding Mexico, Chile and Turkey).”

“The dominance of education in explaining income inequality has also been confirmed by others (Londono 1996; Deininger and Squire 1998; Barro 2000).”

“However, as noted by Barro (2000), since transition to the new steady state can take a long time, the growth effects of changes in explanatory variables (e.g. changes in polarization) can persist for a notable length of time.”

“In Table 5 and Table A.7, we present results from regressions where dummy variables control for 19 Barro (2000) argues that it is more relevant to study how differences in inequality affect growth rates (pooled OLS) rather than how changes in the inequality affect changes in growth rates (fixed…”

“The study of Barro (2000), for example, reports a positive effect of inequality in rich countries and an adverse effect in poor countries.”

“The trade (tradeit) and education (EDit) variables are common to inequality regression models (Barro, 2000) and capture how equally the gains”

“The development of income inequality over the past decades has attracted considerable attention in the public debate and spurred a surge in research trying to understand the causes of inequality (cf. Piketty and Saez (2003); Barro (2000); Rubolino and Waldenström (2020)).”

“Based on the equity-income hypothesis of Kuznets, the relationship between inequality and economic growth has been investigated by several researchers with a regional or national focus (Barro, 2000; Castelló, 2010; Chong, 2004; Herzer & Vollmer, 2012; Halter et al., 2014).”

“These variables constitute the typical determinants of economic development in the long run that were previously identified in the theoretical economic literature and also proved important in numerous empirical growth and development studies in the present as well as in similar formats (see e.g. Barro 1991; Barro 2000…”

“A set of studies corroborate this idea, such as Lundberg and Squire (2003) and Barro (2000), using Gini coefficients to measure inequality, as well as trade to GDP ratios and adjusted trade to GDP ratios to measure openness, respectively.”

“For example, if corruption in poor countries exacerbates inequality, then Barro’s (2000) evidence suggests that corruption may further hamper economic growth in those countries.”

“Financial support was provided in part by the Castor Endowment at the University of Washington. between income inequality and economic growth over the short and medium term, and Barro (2000) finds a positive relationship for developing countries and a negative one for developed economies.”

“Barro , “Inequality and growth in a panel of counties,” pp.”

“One driving issue of the debate stems from income inequality being associated with higher economic growth in high-income countries but hindering economic growth in developing countries (Barro 2000).”

“Literature background - 1 Inequality tends to vary widely across groups of countries, but it is relatively persistent within countries Mixed early evidence: a negative trade-off between growth and inequality (Li et al., 1998), or a positive relationship (Barro, 2000)?”

“…Donatella Saccone donatella.saccone@unito.it © 2017 Informa UK Limited, trading as Taylor & Francis Group in line with the empirical literature on economic growth (Barro 1991, 2000, 2013; Bloom and Williamson 1998; Bassanini and Scarpetta 2001; Bloom et al. 2010; Choudhry and Elhorst 2010).”

“These controls correspond to the variables Barro (2000) 22 This leads to some very strange conclusions, for example, Zimbabwe has more protective employment and collective relations laws than several OECD countries. finds to have an impact on inequality.23 We also test the robustness of the…”

“Analysing a panel data for 86 countries, Barro[20] provided empirical evidence that the negative effect of economic inequality on growth shows up for poor countries, but that the relationship for rich countries is positive.”

“31 For evidence that income inequality reduces growth in developing countries though not in developed countries (presumably because government and market failures are lesser in the latter), see Barro (2000) .”

“Some subsequent cross-country regression studies have confirmed Benabou’s conclusion, but it has also been challenged (see Barro, 1996; Barro, 2000; Forbes, 2000; Quah, 2001; Banerjee and Duflo, 2000; Li and Zou, 1998).”

“Finally, Barro (2000) used the same short frequency data (he is focusing on ten-year intervals), but does not introduce a fixed effect.”

“However, neither theory nor empirical evidence has provided a clear-cut answer to the nature of the relationship (Barro, 2000).”

“, Barro, 2000; Chang & Ram, 2000; Jha, 1996; Mbaku, 1997; Thornton, 2001). At the same time, other empirical studies have rejected the theory as a universal phenomenon (whilst accepting that the relationship could be evident in specific countries) (e.g., Anand&Kanbur, 1993; Cook& Uchida, 2008; Deininger & Squire, 1998…”

“…respect to the median income in the economy, it is crucial to include additional factors such as government debt, employment and total government spending, since they capture a country’s economic maturity and have the potential to impact income distribution and thus median income (see Barro, 2000).”

“between the two (Barro, 2000). Banerjee and Duflo (2003) highlight the non-linear relationship”

“Meanwhile, Barro (2000) argued that income inequality decreases due to economic growth in early stage of development level.”

“This view is consistent with the results of Barro (2000), that finds that the impact of inequality on growth might be dependent on the level of development, using a three-stage least squares estimator and splitting the sample into poorer and richer countries.”

“But there are authors who defend that inequality may have a positive impact on economic growth (Lazear and Rosen 1981; Barro 2000).”

“Possibly the main exponent (and possibly the pioneer) of this view is Barro (2000), whose work estimates the inequality-growth effect over 10 year periods with a broad panel of countries covering from 1965 to 1995 and finds that even though the overall relationship between inequality and growth is…”

“Barro and Lee’s (2000) international data on education attainment [www.”

“and FDI following the suggestion from Barro (2000),”

“This would be consistent with the predictions of the Kuznets curve (Kuznets, 1955) once a critical level of development is reached [see Barro (2000) for a review of this literature].”

“It is also in contradiction to the widely accepted conventional wisdom that, as Barro (2000) puts it, ‘A greater degree of inequality – measured, for example, by the ratio of mean to median ∂τ ∂h u u h v H u c c u c ( ) ( ) ( ) ( ) ( ) .= ′ ⋅ ′′ ⋅ + ′′ ⋅ ′′ ⋅ ′ + 2 2 1 ′′ ⋅ ′ > < − u c c u c (…”

“In the empirical literature, however, some scholars, such as Dollar and Kraay (2004), argue that globalization benefits the poor, while others, such as Barro (2000) and Milanovic (2005) show that greater openness leads to an increase in inequality, especially in countries with higher income levels.”

“While many factors such as: level of economic development (Kuznets 1955; Alderson and Nielsen 2002; Dincer and Gunalp 2012), demographic variables (Deaton and Paxson 1997; Liu and Lawell 2015), human capital development (Crenshaw and Ameen 1994; Barro 2000; Dabla-Norris et al. 2015), natural resources (Buccellatto and…”

“In contrast to this evidence, Borio (2014) and Drehmann, Borio, and Tsatsaronis (2012) argue that the credit cycle is significantly longer and has a much greater amplitude than the standard business cycle. Therefore, Drehmann, Borio, and Tsatsaronis (2011) propose using a smooth HP-trend in order to capture the low fr…”

“To control for economic effects, we use several macroeconomic indicators from the World Bank, real GDP per capita and GDP growth, due to the observed relationship between these phenomena and inequality (Barro, 2000).”

“Barro (2000) and Perera and Lee (2013) focus more strongly on developing countries.”

“Barro (2000) presents fixed-effects estimations of equations of the Gini index on covariates such as GDP and GDP squared, schooling, democracy index, openness, rule of law index, and several dummies.”

“Frankel and Romer (1999) and Barro (2000)) used this measure to examine the impact of trade on inequality within countries.”

“Barro (2000) finds a positive relationship between inequality and growth for rich countries such as the US, but an inverse relationship in poor countries, which he attributes to inequality producing social instability in poor countries (also see Forbes, 1997).”

“Looking at the empirical findings of this literature, three groups emerge with mixed results: first, Barro (2000), Ravallion (2001), and Lundberg and Squire (2003), among others, report a positive association between trade openness and inequality, with this effect generally being stronger in lower income countries.”

“This result is consistent with the recent empirical literature which detects a small correlation ( Barro, 2000 ) or a non-monotonic relationship (Banerjee and Duflo, 2003) between inequality and growth.”

“Following the empirical study by Barro (2000), the empirical specification does not include country fixed effects, because they would eliminate the cross-country information in the data.”

“There is a wealth of evidence showing similar results in developing and developed countries (Barro, 2000; Mauro, 1995).”

“Under this model, income differences and inequality caused by regional economic difference promotes economic growth in developed regions, but it also hinders economic growth in poor regions, and finally led to the formation of the “Matthew effect” [39].”

“9 For instance, Engerman and Sokoloff (2002), Galor, Moav, and Vollrath (2009), and Acemoglu and Robinson (2013) state that inequality may decrease the amount of redistribution in a society.”

“The literature on social distance and learning has focused on the United States and other high-income countries; the evidence is sparse from low-income countries where inequality and lack of mobility are more of a hindrance to growth and development (Barro, 2000; Maoz and Moav, 1999).”

“For example, Barro (2000) found that trade openness has a significant positive impact on income inequality. 14 Garen and Trask (2005), Islam (2006), and Benarroch and Pandey (2012) also reached conclusions that differed from those of Cameron (1978), Rodrik (1998), and Alesina and Wacziarg (1998).”

“Battisti et al., 2013) and could be nonlinear (Galor and Moav, 2004). Similar to the theoretical literature, empirical studies of this issue also find mixed results. For example, while Forbes (2000) finds a positive effect of inequality on growth, supporting the classical view, Persson and Tabellini (1994) demonstrate…”

“…empirical studies relied heavily on cross-sectional data to show the Kuznets Inverted-U pattern of development and income inequality (e.g. Barro, 2000; Nielsen, 1994; Tsai, 1995).1 But scholars started to look beyond the Inverted-U hypothesis as newly available longitudinal data returned…”