An Empirical Analysis of the Relationship between Income Inequality and Growth Volatility in 70 Countries for 1960-2002

12 Pages Posted: 20 Aug 2008  

Laszlo Konya

La Trobe University - School of Economics

Chris Mouratidis

affiliation not provided to SSRN

Date Written: August 20, 2008

Abstract

The aim of this paper is to study the potentially simultaneous relationship between income inequality and growth volatility for seventy countries between 1960 and 2002. Two types of analysis are performed; a cross-sectional analysis based on country averages of all available annual observations, and a panel-data analysis with fixed effects based on 6-year averages. The cross-sectional and panel estimation results are markedly different. In the first case, there seems to be a mutual relationship between inequality and volatility across countries, but several significant coefficients have illogical signs. In the second case, there is no evidence of simultaneity within a country; inequality is influenced by volatility, but inequality does not have a direct effect on volatility. Given the limitations of the cross-sectional analysis, we believe that the simultaneous relationship found in the cross-sectional model is rather spurious than real.

Keywords: Income inequality, GDP growth volatility, Panel data

JEL Classification: C33, O11, O15, O49

Suggested Citation

Konya, Laszlo and Mouratidis, Chris, An Empirical Analysis of the Relationship between Income Inequality and Growth Volatility in 70 Countries for 1960-2002 (August 20, 2008). Applied Econometrics and International Development, Vol. 6, No. 1, 2006. Available at SSRN: https://ssrn.com/abstract=1240317

Laszlo Konya (Contact Author)

La Trobe University - School of Economics ( email )

Bundoora, Victoria 3086
Australia

Chris Mouratidis

affiliation not provided to SSRN ( email )

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