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Inequality and Growth: Nonlinear Evidence from Heterogeneous Panel Data Economic development, Economic outlook

Author Dooyeon Cho, Bo Min Kim, and Dong-Eun Rhee Series 14-01 Language English Date 2014.10.24

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This paper investigates the nonlinear relationship between income inequality and economic growth using a heterogeneous panel data set of 77 countries. The estimated nonlinear function exhibits relatively smooth regime switching, as regards the income inequality level in the previous period. The point above which the time-varying coefficient estimate on inequality turns from positive to negative is found to be the Gini index of 24.5. The results suggest that while inequality hinders economic growth in most of the countries, it accelerates economic growth only in a country where the level of inequality is very low. Furthermore, the results reveal that the negative effects of income inequality on economic growth become more serious in developing countries whose level of inequality is relatively higher. The supplementary linear regressions with various specifications generally confirm the results obtained from the nonlinear model.




Executive Summary
I. Introduction

II. The Panel Smooth Transition Regression Model

III. Results from the PSTR Mode
1. Data
2. Results from the PSTR Model

IV. Supplementary Linear Panel Estimations
1. Linear Dynamic Panel Estimations
2. Panel Granger Causality Test

V. Conclusion

References

Appendix

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