How does inequality affect long-run growth?

Roxana Gutiérrez-Romero
Authors registered in the RePEc Author Service: Roxana Gutiérrez-Romero

No 84, Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research

Abstract: This article shows that countries with higher historical levels of income inequality, dating back to the early 1800s, experienced lower rates of growth centuries after in terms of number of firms created, number of employees hired, firms’ output, value added and profit margin. To increase the understanding as the channels through which historical inequality deterred growth, the article exploits the differences across industries’ intensities in skilled labour, physical capital, dependence on external finance and written contracts across 28 sectors in 57 countries during the 1985–2010 period. It is shown that industries relatively more in need of external finance and contracts experienced lower firm creation growth in countries with higher levels of past inequality. Similarly, industries intensive in skilled labour and physical capital experienced lower rate of growth in the number of employees hired, firms’ output and real value in more unequal countries.

Keywords: Inequality; Entrepreneurship; panel study (search for similar items in EconPapers)
JEL-codes: C5 O11 O47 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-his and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:cgs:wpaper:84

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