Re-estimating the relationship between inequality and growth

Nathalie Scholl and Stephan Klasen

Oxford Economic Papers, 2019, vol. 71, issue 4, 824-847

Abstract: In this paper, we revisit the inequality–growth relationship using an enhanced panel data set with improved inequality data. We explicitly take into account the special role of transition (post-Soviet) countries and add an instrumental variable (IV) estimation to add a causal interpretation to our findings. Our analysis is based on the specification used by Forbes in her 2000 paper, but we also address functional form concerns raised by Banerjee and Duflo three years later. We arrive at three main findings: First, the significant positive association between inequality and economic growth in the full sample is entirely driven by transition countries. Second, this relationship in transition countries is not robust to the inclusion of separate time effects. Lastly, it appears that this association is not causal but rather driven by the particular timing of the transition. Results from IV estimation confirm our interpretation of the observed positive relationship in the overall sample as non-causal.

JEL-codes: O11 O15 O40 P20 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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Working Paper: Re-estimating the Relationship between Inequality and Growth (2016)
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