A REASSESSMENT OF THE RELATIONSHIP BETWEEN INEQUALITY AND GROWTH: WHAT HUMAN CAPITAL INEQUALITY DATA SAY?

Working Papers. Serie EC from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper studies the empirical relationship between inequality and economic growth. It estimates a dynamic panel data model that controls for fixed effects and, therefore, solves the problem of omitted variable bias present in cross-section regressions. Forbes?(2000) results suggest that income inequality and economic growth are positively related when country specific effects are taken into account. This paper shows that this result holds even controlling for education inequality. However, neither the first difference nor the system GMM estimator, which seems to perform better in growth regressions, support a positive association between education inequality and economic growth. On the contrary, an increase in human capital inequality is related to lower subsequent growth rates not only in the long-term across-countries but also in the short-term within a country. In particular, the negative relationship between human capital inequality and growth is mainly due to a discouraging effect on the physical capital investment rates and, in line with the model of De la Croix and Doepke (2003), through a channel that connects inequality an fertility decisions.

Keywords: Human capital and income inequality; Economic growth; Dynamic panel data model. (search for similar items in EconPapers)
Pages: 33 pages
Date: 2004-07
New Economics Papers: this item is included in nep-dev, nep-edu and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasec:2004-15

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