Inequality and Growth in a Panel of Countries

“(2001b) exploited differences in European settler mortality rates as an exogenous instrument 2 For an excellent discussion of on-going convergence in the past century, see Barro (1991, 2000), Mankiw (1995), Mankiw et. al.”

“Referencing to the work of Barro (2000) and Frank (2005), the term RERit* RPGDPi,t-1, which is the crossproduct of the natural logarithm of real per capita GDP and the rate of change in income polarization, is also introduced as one of the explanatory variables in Model (4).”

“trading tends to increase the scope of the expropriation of voters. Barro (2000) and”

“whereas a positive one is found for developed ones ( Barro, 2000 )2.”

“Since the investors' borrowing 1 Empirical papers on the inequality-growth nexus explicitly highlighting this channel include, among others, Perotti (1996), Barro (2000), and Banerjee and Duflo (2003).”

“4 Note that this paper does not fit into the literature on the role of income growth on poverty reduction (e.g. Kraay, 2006) and reduction of income inequality (e.g. Barro, 2000) since we study the joint income-health distribution.”

“Our hypothesis has not been confirmed, which could be due to the problems inherent in the use of GDP per capita as an indicator of human development (Barro 2000).”

“Although inequality in wealthy countries, like the U.S., is compatible with strong economic growth, among poorer countries, like China or Russia, the impact of inequality on growth is negative (Barro, 2000).”

“Early work uses cross-country panel data (Barro, 2000; Forbes, 2000; Banerjee and Duflo, 2003), which makes identification challenging.”

“An excessive level of disparities has in fact been seen as an obstacle to growth, calling for specific analyses of their trends (e.g. Barro 2000, Persson and Tabellini 1994, Castells-Quintana and Royuela 2017, Camagni 2024).”

“In terms of empirical evidence, there are mixed results when testing this hypothesis, for example, Barro (2000), using cross-sectional data, finds an inverted-U curve between income inequality and the gross domestic product (GDP) per capita but does not entirely explain the variation in income…”

“For instance, Rodríguez (2008) found that Spain (1990) was the 3 The positive channels are related to the incentives for saving and investing (Kaldor, 1956; Barro 2000), asymmetric information (Mirrlees, 1971), and the generation of productivity premiums (Goldin and Katz, 2008; Mankiw, 2013).”

“More specifically, high persistence in some series may lead to weakinstrument problems and cause huge biases and imprecision, as pointed out by, e.g., Barro (2000), Hauk and Wacziarg (2009), and Blundell and Bond (1998).”

“, were institutions which stunt economic growth (Sachs & Warner, 1995, Barro, 1997, 2000; Meon&seckat, 2004; Kaufmann et al., 2005). Jalilian et al. (2007) highlighted the function of institutional ability to regulate the compensation of cross-country changes in the growth of a country.”

“…(at 10% level) influence on the level and dynamics of income inequality in the EU candidate countries, which is in line with Breen and Garcia-Penalosa (2005), Barro (2000), De Gregorio and Lee (2002) who stressed that higher educational attainment leads to decreasing the differentiation in payment.”

“Economic growth is crucial to reducing poverty in the region [7].”

“See Barro (1997, 2000), Schleifer and Vishney (1994), Knack and Keefer (1995), Mauro (1995), Sachs and Warner (1995), Frye and Shleifer (1997), Johnson et al. (1998), Easterly and Levine (2002), Kauffman and Kraay (2002), Rodrik et al. (2004), Rodrik and Subramanian (2003), Meon and Sekkat (2004),…”

“In addition the result of this study is confirmed by the study by Barro (2000), Panizza (2002), (Papanek & Kyn, 1986), and Bhanumurthy & Mitra (2004) who found that high growth will reduce income inequality.”

“Meanwhile, efforts by economic elites to resist this redistribution, for example through vote buying and other corrupt behavior, itself could be distortionary and wasteful and thus also detrimental to growth (Barro 2000).”

“Combining the government’s balanced budget constraint (7) with the economy-wide resource constraint (13) along the balanced growth path, and substituting for the taxable income-to-private capital ratio from (15) we obtain:”

“Following Freedom House’s classification criteria, a nation is classified as ‘free’ if the combined average score lies in the range 1.0–2.5, ‘partly free’ if the score lies in the range 2.5–5.5 and ‘not free’ if the score is in excess of 5.5.”

“Eswaran and Kotwal (1993) also explain why poverty might be impervious to industrial progress in some countries assuming a hierarchical preference structure (following Engel’s law) for the population. Foellmi and Zweimüller (2006) introduce non-homothetic preferences into an innovation-based growth model.”

“5) Some of the most recent studies that consider impact of foreign financial aid on economic growth are by Boon (1996), Lensink and Morrissey (1999), Barro and Sala-I-Martin (1999),”

“Concerning trade openness and income inequality, it has been empirically proven that trade openness increases inequality in developed countries, while the opposite is true for developing countries (Barro 2000; Wood 1997).”

“In that specification, there is a negative relationship between inequality and growth for 14 The negative relationship between inequality and growth remains robust even when the analysis controls for the initial level of income, as is standard in growth regressions (see Barro 2000).”

“Furthermore, the inclusion of controls for these channels can alter the sign and significance of the inequality variable in these cross-country empirical specifications (Barro 2000).”

“Departing from this characterization in terms of simple linear relationships, Barro (2000, 2008) found that income inequality has different effects on economic growth for poor and rich countries: Inequality encourages growth in rich economies but slows it down in poor ones.”

“[13] Barro, R.”

“According to Barro (2000), the link between economic growth and income inequality is based on the assumption that the “distribution of political power is more egalitarian than the distribution of economic power”, indicating the inability of policies fighting income inequality to induce improvements…”

“We strive to address this issue by instrumenting secessionist vote with its lagged values and estimating in two stages (for the use of lagged values of the explanatory variables as instruments see, notably, BARRO, 2000).7”

“There is an ongoing debate about whether inequality, by driving redistributive policies, is inimical to growth (Alesina and Rodrik, 1994; Banerjee and Daflo, 2003; Barro, 2000; Persson and Tabellini, 1994).”

“…Mauro (1995), Persson and Tabellini (2008) and Scully (1988); while the impact of economic institutions on economic change is investigated by Assane and Grammy (2003), Barro (1991, 1996, 2000), Keefer and Knack (1997), Persson and Tabellini (1994), Spindler (1991) and Vanssay and Spindler (1994).”

“More recently, the literature of socio-political unrest [7,8] points out that redistribution guarantees social stability and reduces the effort the society has to make when inequality is high.”

“(1998), Forbes (2000), and Barro (2000) .2 From a theoretical perspective, this empirical controversy”

“Barro (2000: 23) finds a significant relationship between the Gini coefficient and a quadratic form of the log of GDP in a sample of 100 countries over the period 1965–95.”

“forms of the inequality-growth relationship (Ram, 1997; Barro, 2000; Forbes, 2000).”

“De todos modos, la evidencia empírica reciente no es contundente (Barro, 2000; Forbes, 2000; Banerjee & Duflo, 2003; Gylfason & Zoega, 2003) y las relaciones entre ambos procesos han brindado resultados empíricos dispares y poco concluyentes.”

“The American economist Kuznets has stated that income inequality follows an inverted U-shaped curve during economic growth, expanding initially and then contracting [5].”

“For example, an increasing return to wealth can be derived from indi-visibility of investment (Bhattacharya, 1998) or credit rationing (Barro, 2000; Aghion & Bolton, 1997).”

“Furthermore for Model II the study confirms the results based on the work by Barro (2000) and Lee and Son (2016).”

“This causes sociopolitical unrest and makes the poor more prone to crime and other disruptive activities (Barro, 2000).”

“Also mention should be made of the publications of Barro (2000) and Figini (1999). Barro identified four key channels in explaining the impact of inequality on economic growth: imperfect credit markets, political process, socio-economic tensions, and differences in saving rates.”

“10 Barro (2000) also offers a fourth category, related to savings, but does not identify any recent papers that rely on this channel.”

“…and theoretical studies include Aghion and Bolton (1997), Alesina and Rodrik (1994), Bandyopadhyay and Basu (2005), Banerjee and Duflo (2000), Banerjee and Newman (1993), Barro (2000), Bertola (1993), Castello and Domeneh (2002), Forbes (2000), Galor and Zeira (1993), Persson and Tabellini (1994).”

“8 See also Barro (2000, p. 9) for a survey of related work.”

“Barro (2000) finds that inequality in developing countries is negatively correlated with economic growth, while Adams (2003) uses a new dataset to argue that growth is important for poverty reduction.”

“Barro, 2000; Forbes, 2000; Persson and Tabellini, 1991, among many others). Most of these authors find either a negative relation or no significant relation at all. In our context the relation depends on the wealth of the group. For very poor groups in our data inequality and group income are positively related, while…”

“Moreover, Deininger and Squire (1998) find that asset inequality has a negative impact on economic growth, but only in nondemocratic countries, while Barro (2000) reports that the effects of income inequality on growth are negative in poor countries, but positive in rich countries.”

“Nonetheless, some research suggests the relationship between institutions and FDI flows is negative (e.g., Barro, 2000; Aseidu, 2002; Sethi et al., 2003) as well as some findings indicating a reverse link between them (e.g., Egger and Winner, 2005; Busse and Groizard, 2008; Baklouti and Boujelbene,…”

“Economic stagnation, according to the Kuznets’ curve effect, will result in an increase in inequality (Greenwood and Jovanovic 1990; Barro 2000; Lloyd-Ellis and Bernhardt 2000).”

“Education is often seen as a vital instrument to improve income, promote growth, and reduce inequality of opportunity, eventually reducing income inequality (Park 1996; Barro 2000, 2013; Sylwester 2002; Lin 2007; Corak 2013).”