A reassessment of inequality and growth in the United States

Ho-Chuan Huang () and Chih-Chuan Yeh

Applied Economics Letters, 2012, vol. 19, issue 3, 289-295

Abstract: In a recent interesting paper, Frank (2009) investigated the long-run inequality--growth nexus with a large panel of annual data for the 48 states in the United States over the 1945 to 2004 post-war period. By implementing the Pooled Mean Group (PMG) estimators, Frank (2009) concluded that there is a significant and positive relationship between inequality and growth. However, we find that Frank (2009) was actually measuring the effect of inequality on economic development (proxied by the logarithm of the real state income per capita) rather than on economic growth (defined by the first difference of the logarithm of the real state income per capita). To this purpose, we suggest a more adequate specification to reassess the relationship using the same data set and estimation technique. The fresh empirical results indicate that the inequality--growth connection continues to hold in a positive and significant manner, and the findings are robust to alternative lag order structures and income inequality measures.

Date: 2012
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DOI: 10.1080/13504851.2011.572845

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