Inequality and Development - A Regression Analysis of the Cross-Country Pattern
No 89-17, Discussion Papers from University of Copenhagen. Department of Economics
The purpose of this paper is to reinvestigate the relaionship between economic development and size distribution of income. In this field, the inverted U-curve, or Kuznets curve, describing the inequality trend in the course of economic development, is often viewed as a "stylized fact" of development literature, established mainly by a number of cross-country studies. Compared to these earlier investigations the present paper uses a different data selection procedure, updates the figures, and is thus testing hypotheses by the means of regression analysis within the framework of a new set containing 64 countries. The U-hypothesis in its GDP per capita version, using a global scale, is rejected. However, the theoretical expectations are supported, if one of the following three modifications is used: application of a subsample of only LDC-countries, logarithmic transformation of GDP, or structuralist interpretation of the development process. In these cases the models have a strikingly high explanatory power, but quite different predictions about the form of the estimated U-curve. It is concluded that the cross-country U-curve is not only heavily dependant on the theoretical assumptions made, but also significantly affected by differences in the data selection procedure and by the appearance of new data.
Pages: 15 pages
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:8917
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