Nonlinearity between Inequality and Growth

Shu Chin Lin, Ho Chuan Huang, Dong-Hyeon Kim, Chih Chuan Yeh

Research output: Contribution to journalArticle

16 Citations (Scopus)

Abstract

The existing literature shows that income inequality plays an important role in growth process, and such a relationship is better characterized as nonlinearity. The paper revisits the issue by employing the threshold regressions with instrumental variables approach. Using the initial level of economic development as a threshold variable, we find strong evidence in support of a nonlinear income threshold in the relationship. In particular, the data show that an increase in inequality would hinder growth in low-income countries but accelerate growth in high-income ones. The results therefore suggest that redistributive policy that alleviates inequality can foster economic growth in low-income countries, while policymakers confront a tradeoff between inequality and growth in high-income countries.

Original languageEnglish
Article number3
JournalStudies in Nonlinear Dynamics and Econometrics
Volume13
Issue number2
Publication statusPublished - 2009 May 12
Externally publishedYes

Fingerprint

Nonlinearity
income
low income
Instrumental Variables
Economic Growth
Growth Process
Accelerate
economic growth
Regression
Trade-offs
Economics
regression
evidence
economics
Income
Relationships
Low-income countries
Evidence
Policy
literature

Keywords

  • Growth
  • Inequality
  • Instrumental variables
  • Threshold

ASJC Scopus subject areas

  • Economics and Econometrics
  • Social Sciences (miscellaneous)
  • Analysis

Cite this

Nonlinearity between Inequality and Growth. / Lin, Shu Chin; Huang, Ho Chuan; Kim, Dong-Hyeon; Yeh, Chih Chuan.

In: Studies in Nonlinear Dynamics and Econometrics, Vol. 13, No. 2, 3, 12.05.2009.

Research output: Contribution to journalArticle

Lin, Shu Chin ; Huang, Ho Chuan ; Kim, Dong-Hyeon ; Yeh, Chih Chuan. / Nonlinearity between Inequality and Growth. In: Studies in Nonlinear Dynamics and Econometrics. 2009 ; Vol. 13, No. 2.
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