Authors: Mohsen Bahmani-Oskooee; Abera Gelan
Addresses: Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA. ' Department of Africalogy, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA
Abstract: Most of the research on the relation between economic growth and income distribution has concentrated on the well-known Kuznets inverted-U hypothesis which claims that economic growth initially worsens income inequality and then it improves it. A few studies have argued that income inequality could also affect economic growth through its impact on saving and investment. In this paper, we use time-series data from 18 developing countries along with the bounds testing approach and investigate bi-directional causality between economic growth and a measure of income inequality. We find that while there is short-run bi-directional causality in most countries, the long-run causality is limited to less than half of the countries in the sample.
Keywords: income distribution; economic growth; causality; bounds testing; income inequality.
Global Business and Economics Review, 2012 Vol.14 No.4, pp.249 - 273
Received: 26 Mar 2011
Accepted: 26 Oct 2011
Published online: 29 Jul 2014 *