Inequality and Growth: What Can the Data Say?

Abhijit V. Banerjee and Esther Duflo

No 7793, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D31 O41 (search for similar items in EconPapers)
Date: 2000-07
Note: EFG
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Journal Article: Inequality and Growth: What Can the Data Say? (2003)
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