A Reassessment of the Relation Between Economic Growth and Maldistribution of Income

Pedro Clavijo, Jacobo Campo-Robledo and Henry Mendoza-Tolosa
Authors registered in the RePEc Author Service: Jacobo Alberto Campo Robledo

Working papers from Red Investigadores de Economía

Abstract: This article aims to evaluate the effect of the maldistribution of income on economic growth. From the empirical point of view, the literature on the matter is considerable. However, previous studies have employed the Gini index as a measure of inequality which tends to underestimate income disparities across countries. Because the complexity of inequality has changed over time and due to the Gini index is incapable of capturing the changing nature of distribution, we employ the Palma Ratio instead of the Gini index. The main advantage of employing the Palma Ratio is that it captures the dynamics of inequality and allows us to analyze the roots of this maldistribution. The relationship is estimated employing the methodology of Arellano-Bond for dynamic panels, and the results suggest that maldistribution of income generates a sluggish economic growth. In fact, our results suggest that inequality could be associated with a substantial reduction in growth.

Keywords: Palma Ratio; Dynamic panels; Inequality; Economic growth (search for similar items in EconPapers)
JEL-codes: C23 D63 E25 O11 O47 (search for similar items in EconPapers)
Pages: 22
Date: 2019-11
New Economics Papers: this item is included in nep-gro
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Working Paper: A Reassessment of the Relation between Economic Growth and Maldistribution of Income (2019)
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