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The Relationship Between Economic Growth and Inequality: Evidence from the Age of Market Liberalism

Gerardo Angeles-Castro ()

Studies in Economics from School of Economics, University of Kent

Abstract: Using a panel data set of selected countries, this paper shows that the inequality-growth relationship follows an ordinary-U curve during the period 1970-98, in which inequality first decreases and then increases with economic growth. In addition, there is some evidence that the increasing pattern may reverse at higher levels of income. A time-series approach shows that a substantial group of countries capture a minimum turning point in different years along the period and others follow a permanent positive trend. It also indicates that only a few countries reverse inequality in a latter stage and display a maximum turning point after the mid 1990s; these countries are associated with macroeconomic stability, high governance and moderate expansion of trade and FDI. Hence, the inequality-growth relationship during the era of market openness has tended to change towards a positive one, although it might reverse at a later stage.

Keywords: Income Distribution; Economic Growth; Dynamic Panel Data Models; Time-Series Analysis. (search for similar items in EconPapers)
JEL-codes: C22 C23 O15 O57 (search for similar items in EconPapers)
Date: 2006-01
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