An empirical investigation of the relationship between inequality and growth

Patrizio Pagano ()

No 536, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper studies the correlation between inequality, measured by the Gini coefficent of incomes, and the growth rate of per capita GDP in a panel of countries between the late 1950s and late 1990s. Inequality Granger causes growth with a negative coefficient, while growth Granger causes inequality with a positive sign. Quantitatively, the former effect appears much larger than the latter. Once I allow for the effect to differ between rich and poor countries interesting differences emerge. While lagged inequality appears positively correlated with growth in the subgroup of rich countries, in poor countries besides a negative and significant effect of lagged inequality on growth there is a negative and significant effect of lagged growth on inequality

Keywords: growth; inequality; panel; GMM; Granger causality (search for similar items in EconPapers)
JEL-codes: C23 D3 O11 O40 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_536_04

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