Essays on the relationship between income inequality and economic growth
This doctoral dissertation studies the relationship between income inequality and
economic growth. It adds to the literature by incorporating the division of income
between capital and labor into the analysis, by evaluating the role of financial
conditions, by acknowledging country-specificity, by closely examining popular
estimation techniques, and by adopting multiple measures of inequality. The
dissertation comprises an introductory chapter and five studies. The first four
are empirical, while the fifth contains both empirical and theoretical analyses.
The first essay documents how results on the association between income
inequality and subsequent per capita GDP growth depend on estimation technique.
Specifically, accounting for country-specific unobservable characteristics
explains many of the negative associations obtained using techniques that ignore
them. It is also found that GMM techniques are not effective in disentangling
causation from correlation.
The second essay tests the prevalence of financial development as a determinant
of the inequality-growth relationship. A multi-dimensional measure of
financial development is adopted, and the results imply that promoting the development
of financial markets may alleviate the adverse effects of income inequality
on economic growth in under-developed countries.
Unlike the first two essays, which rely on cross-country panel data, the
third focuses on individual countries. Clear differences between countries are
documented, and evidence is found for the proposition that economic growth
responds asymmetrically to fluctuations in inequality.
The fourth essay introduces data on capital shares and shows that shares are
integrated between countries. In all sample countries, changes in capital shares
are mainly driven by a single latent factor. In most of the countries, the factor is
correlated with both trade openness and total factor productivity.
The fifth essay shows that, as a matter of both empirics and theory, the association
between top income shares and growth is positive when the capital share
of income is low and negative when the capital share of income is high. The empirical
regularity emerges from historical data. The theoretical analysis stresses
the importance of precautionary saving motives and consumption smoothing.
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Publisher
Jyväskylän yliopistoISBN
978-951-39-8742-8ISSN Search the Publication Forum
2489-9003Metadata
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- JYU Dissertations [806]
- Väitöskirjat [3515]
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