Inequality and Economic Growth: The Role of Initial Income

59 Pages Posted: 8 Jun 2018

See all articles by Markus Brueckner

Markus Brueckner

The Australian National University

Daniel Lederman

World Bank - Latin America and Caribbean Region

Date Written: June 5, 2018

Abstract

This paper estimates a panel model in which the relationship between inequality and gross domestic product per capita growth depends on countries' initial incomes. Estimates of the model show that the relationship between inequality and gross domestic product per capita growth is significantly decreasing in countries' initial incomes. The results from instrumental variables regressions show that in low-income countries, transitional growth is boosted by greater income inequality. In high-income countries, inequality has a significant negative effect on transitional growth. For the median country in the world that in 2015 had a purchasing power parity gross domestic product per capita of around US$10,000, instrumental variables estimates predict that a 1 percentage point increase in the Gini coefficient decreases gross domestic product per capita growth over a five-year period by over 1 percentage point; the long-run effect on the level of gross domestic product per capita is around -5 percent.

Keywords: Poverty Reduction Strategies, Economic Growth, Industrial Economics, Economic Theory & Research, Educational Sciences, Tertiary Education

Suggested Citation

Brueckner, Markus and Lederman, Daniel, Inequality and Economic Growth: The Role of Initial Income (June 5, 2018). World Bank Policy Research Working Paper No. 8467. Available at SSRN: https://ssrn.com/abstract=3192264

Markus Brueckner (Contact Author)

The Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

Daniel Lederman

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

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