SUSTAINABILITY OF ECONOMIC GROWTH AND INEQUALITY IN INCOMES DISTRIBUTION

Burz Razvan () and Bogdan Boldea ()
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Burz Razvan: West University of Timisoara, Faculty of Economics and Business Administration

Annals of Faculty of Economics, 2012, vol. 1, issue 1, 249-254

Abstract: The problem of inequality in incomes distribution is a present one, much discussed. Economic growth is considered an essential force to reduce the level of poverty by increasing the labor demand and finally the wages within the economy. But the extent to which poverty is reduced as a result of economic growth depends mostly on the initial inequalities in income and on how the distribution of income changes with economic growth. A lot of researches are focused on studying the evolution of inequality in incomes distribution and others have attempted to explore the relationship between income inequality and economic growth. There are also studies which try to identify the main factors which have impact on inequality in incomes distribution. The objective of this study is to put in discussion another possible factor that affects the variability on inequality of incomes distribution -economic growth variability. As background research, until now, we did not find any studies which are investigating this possible relation between inequality of incomes distribution and economic growth variability. To provide some empirical evidences for a positive impact of social output volatility on inequality of incomesâ€(tm) distribution we are involving a small sample of 27 developing countries for an observation time span between 1995 and 2006. The values of the Gini coefficient reported in World Income Inequality Database are used as dependent variable. As a first step in testing our research hypothesis, we are involving a static panel data model with pooled ordinary least squares (OLS), fixed effects (FE) and random effects (RE) estimators. The F statistics tests the null hypothesis of same specific effects for all countries. If we accept the null hypothesis, we could use the OLS estimator. The Hausman test can decide which model is better: random effects (RE) versus fixed effects (FE). The FE model was selected because it avoids the inconsistency due to correlation between the explanatory variables and the country-specific effects. For a robustness assessment, we also apply the so-called GMM-System estimation. According to our results, an increase in the volatility of the social output (a decrease in the sustainability of the growth processes) leads to a greater inequality in incomes distribution. Such outcome appears to be robust to the changes in estimation methodology

Keywords: inequality; inequality in incomes distribution; inequality factors; economic growth; economic growth volatility (search for similar items in EconPapers)
JEL-codes: O15 Q01 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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