We investigate whether income inequality affects subsequent growth in a cross-country sample for 1965-90, using the models of Barro (1997), Bleaney and Nishiyama (2002) and Sachs and Warner (1997), with negative results. We then investigate the evolution of income inequality over the same period and its correlation with growth. The dominating feature is inequality convergence across countries. This convergence has been significantly faster amongst developed countries. Growth does not appear to influence the evolution of inequality over time. Outline

https://www.econstor.eu/bitstream/10419/81822/1/02-28.pdf

Economic growth and income inequality

This paper describes the correlations between inequality and the growth rates in cross-country data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: Changes in inequality (in any direction) are associated with reduced growth in the next period. The estimated relationship is robust to variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model, although, as we point out, efforts to interpret this model causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.

Inequality and Growth: What Can the Data Say?

relationship. All subsequent studies confirmed it (see for example King and Levine, 1993, and the review in: Pagano, 1993). Goldsmith used a sample of 35 countries for the period between 1860 and 1963 to show the relationship between income and financial depth measured by the ratio between bank's assets and GDP. He also showed that in periods of rapid growth, financial depth grows faster than income. More details about measuring financial depth can be found in this paper. FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH Velimir Šonje

/pdf/financial-development-and-economic-growth-1933kuo17q.pdf

Financial development and economic growth

The evolution of the natural resource curse thesis: A critical literature survey

This paper extends the work of Al-Mulali and Ozturk (2015) [1] by re-investigating the Environment Kuznets Curve (EKC) hypothesis for 15 MENA (Middle East and North African) countries using the Ecological Footprint (EF) as a proxy of environmental degradation over the period 1975–2007. Unlike the existing studies, we augment the basic EKC relationship by considering life expectancy at birth, fertility rate and political institutional index variables as new possible determinants of environmental degradation. The estimation of this relationship has been conducted for all MENA 15 countries, for oil-exporting and non-oil-exporting countries sub-samples. The results show that energy use worsens ecological footprint, whereas real GDP per capita exhibits an inverted U-shaped relationship with EF in oil-exporting countries and in the sample as a whole, i.e., the EKC hypothesis is validated. For the non-oil-exporting countries, the relationship between EF and economic growth is U-shaped. Moreover, our findings show that socio-demographic variables such as urbanization, life expectancy at birth and fertility rate improve the environment in the long term. We also found that the improvement of political institutions in those countries has not been accompanied by a reduction of environmental stress. The Granger causality results support evidence of the existence of an error correction mechanism between the EF, real GDP, energy use and the fertility rate. Specifically, in the short term, we found strong evidence for bidirectional causality among the ecological, real GDP and energy-use variables.

The impact of economic development and social-political factors on ecological footprint: A panel data analysis for 15 MENA countries

The question as to whether natural resources are a curse on economic growth and development is subject to considerable debates and remains controversial. Using heterogeneous panel cointegration techniques, this paper provides a fresh re-examination of the resource curse while allowing for cross-section heterogeneity and commonalities in the nexus between natural resource abundance and economic development. It finds, in a sample of developing countries, that economies endowed with abundant natural resources tend to develop more slowly than countries with scarce resources. Natural resources are, on average, a curse. However, there is considerable heterogeneity in the effects of resource abundance on economic development across countries, perhaps because of differences in the extent of government intervention, access to sound money, legal structures and the security of property rights, the degree of globalization, and/or corruption.

Natural Resources and Economic Development: New Panel Evidence

Inflation and the finance–growth nexus

Financial structure, firm size and industry growth

The existing literature shows that income inequality plays an important role in growth process, and such a relationship is better characterized as nonlinearity. The paper revisits the issue by employing the threshold regressions with instrumental variables approach. Using the initial level of economic development as a threshold variable, we find strong evidence in support of a nonlinear income threshold in the relationship. In particular, the data show that an increase in inequality would hinder growth in low-income countries but accelerate growth in high-income ones. The results therefore suggest that redistributive policy that alleviates inequality can foster economic growth in low-income countries, while policymakers confront a tradeoff between inequality and growth in high-income countries.

Nonlinearity between Inequality and Growth

I. INTRODUCTION The Kuznets hypothesis, Simon Kuznets' classic prediction for long-term evolution of income inequality, remains to date the most significant dictum in the development literature. Based on time-series observations on developed countries such as the United States, England, and Germany, Kuznets (1955) concludes that income inequality first worsens and then improves over the course of economic development. This inverted U-shaped relationship between inequality and development has been interpreted to imply that polarization in the early stages of development may be a necessary ingredient for future economic growth. In that respect, an economy that prematurely implements a policy designed to enhance equality may be trapped at a low stage of development. In light of its obvious policy importance, intense research has attempted to explore economic mechanisms that may generate the Kuznets curve. For example, Robinson (1976), Rauch (1993), and Anand and Kanbur (1993a) formalize the Kuznets hypothesis as a result of migration from the agricultural to the nonagricultural sector. Some studies, including Greenwood and Jovanovic (1990), Banerjee and Newman (1993), Perotti (1993), Aghion and Bolton (1997), and Lloyd-Ellis and Bernhardt (2000), rationalize the Kuznets process in the framework of dynamic general equilibrium with capital market imperfections. Specifically, Greenwood and Jovanovic (1990) obtain the Kuznets curve in a model of financial intermediation. In the study of Banerjee and Newman (1993) and Lloyd-Ellis and Bernhardt (2000), the Kuznets process arises in a model of occupational choice. Perotti (1993) focuses on political economy considerations and Aghion and Bolton (1997) highlight the role of capital accumulation in delivering the inverted U. Others, for example, Galor and Tsiddon (1996, 1997a, 1997b), Dahan and Tsiddon (1998) and Glomm and Ravikumar (1998), postulate that interplay between technological progress and human capital determines the inverted-U pattern of wage inequality. By contrast, Eicher and Garcia-Penalosa (2001) emphasize the dual role of human capital in determining the pattern of inequality over the course of secular economic growth. In particular, depending on the direct cost of education, the extent of externalities in the education process and the elasticity of substitution between skilled and unskilled workers in production, inequality may increase, decrease or follow a U-shaped path as a country accumulates skills. Empirical studies supporting the Kuznets inverted-U relationship between inequality and development, both in the cross-country and intertemporal contexts, are voluminous. For example, using a parametric specification of regressing inequality indicators on gross domestic product (GDP) per capita and its squared term, along with some other explanatory variables, Ahluwalia (1976a, 1976b) finds a positive coefficient on the GDP per capita variable and a negative coefficient on its squared term, which are consistent with the Kuznets hypothesis. Subsequent studies such as Campano and Salvatore (1988), Randolph and Lott (1993), Jha (1996). Dawson (1997), Eusufzai (1997), Mbaku (1997), Barro (2000), Bulir (2001), and Iradian (2005) also support this evidence. While most studies confirm the existence of the Kuznets curve, counterevidence also exists. As argued by Kanbur (2000), the Kuznets relationship, once accepted as a strong empirical regularity through the 1970s, is weakening over time. For example. Papanek and Kyn (1986) find that the Kuznets curve appears to be statistically significant but lacks explanatory power for variations in inequality across countries or over time. Li, Squire, and Zou (1998) assert that the Kuznets relation works better for a cross section of countries at a point in time than for the evolution of inequality over time within countries. Deninger and Squire (1998) and Lundberg and Squire (2003) also argue that a Kuznets-type relationship is, at best, uncertain and ambiguous. …

Shu Chin Lin

Papers

Natural Resources and Economic Development: New Panel Evidence

Inflation and the finance–growth nexus

Financial structure, firm size and industry growth

Nonlinearity between Inequality and Growth

Kuznets Hypothesis In A Panel Of States