Fluctuations, Uncertainty and Income Inequality in Developing Countries

Fadi Fawaz, Masha Rahnamamoghadam and Victor (Vic) Valcarcel
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Fadi Fawaz: Department of Economics, Jamestown College, Jamestown, ND 58405, USA
Masha Rahnamamoghadam: Department of Economics, Texas Tech University, Lubbock, TX 79409, USA

Eastern Economic Journal, 2012, vol. 38, issue 4, 495-511

Abstract: We analyze income inequality and high frequency movements in economic activity for low and high income developing countries (LIDC and HIDC). The impact of human capital, capital formation, and economic uncertainty on income inequality for LIDC and HIDC are also evaluated. We find strong evidence that business cycle fluctuations serve to exacerbate income inequality in HIDC while they help narrow the gap in LIDC. Importantly, volatility in output widens inequality across the board but to a consistently higher degree in HIDC. Schooling helps reduce income inequality in both country groups, while investment increases income inequality. Lastly, the Kuznets inverted U-curve hypothesis is confirmed for both LIDC and HIDC.

Date: 2012
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