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Inequality, financial development and economic growth in the OECD, 1870–2011

Jakob Madsen (), Md. Rabiul Islam and Chris Doucouliagos ()

European Economic Review, 2018, vol. 101, issue C, 605-624

Abstract: Inequality's effect on growth remains elusive, largely due to endogeneity, complex interactions, and lead–lag relationships. We revisit this issue by examining the four main channels through which inequality transmits to growth: savings, investment, education, and knowledge production. We construct new panel data for 21 OECD countries spanning 142 years. External communist influence is used as a new time-varying instrument for inequality and the effects of inequality on the outcome variables are made conditional on the stage of financial development. Our results show that inequality hampers growth at low to moderate levels of financial development but has little effect on growth at advanced levels of financial development.

Keywords: Inequality; Financial development; Transmission channels (search for similar items in EconPapers)
JEL-codes: E20 O15 O40 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Inequality, Financial Development and Economic Growth in the OECD, 1870-2011 (2016) Downloads
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