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Income Disparities, Economic Growth, And Development As A Threshold

Author

Listed:
  • Sherif Khalifa

    (Department of Economics, California State University)

  • Sherine El Hag

    (Department of Economics, California State University)

Abstract

Galor and Moav (2004) argue that in the early stages of development, physical capital accumulation is the primary source of economic growth. Thus, inequality enhances growth by channeling resources towards individuals whose marginal propensity to save is higher. In later stages of development, physical capital is replaced by human capital as the engine of growth. Accordingly, equality alleviates the adverse effects of credit constraints on human capital accumulation and prompts the growth process. This paper attempts to test empirically the finding that the impact of income inequality on economic growth depends on the development stage. A threshold estimation technique, developed by Hansen (1999), is utilized for a panel of 70 countries for the period between 1970 and 1999. The estimation suggests that there is a statistically significant threshold income per capita, below which the coefficient on the relationship between inequality and growth is significantly negative and above which the estimate is positive, but not statistically significant.

Suggested Citation

  • Sherif Khalifa & Sherine El Hag, 2010. "Income Disparities, Economic Growth, And Development As A Threshold," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(2), pages 23-36, June.
    • Handle: RePEc:jed:journl:v:35:y:2010:i:2:p:23-36
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    References listed on IDEAS

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    3. Neves, Pedro Cunha & Afonso, Óscar & Silva, Sandra Tavares, 2016. "A Meta-Analytic Reassessment of the Effects of Inequality on Growth," World Development, Elsevier, vol. 78(C), pages 386-400.
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    5. Suzanna‐Maria Paleologou, 2019. "In search of thresholds in the household income inequality–growth relationship," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(4), pages 989-1008, October.
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    7. Rusli Abdulah, Rusli, 2013. "Faktor-Faktor Yang Memengaruhi Ketimpangan Pendapatan Di Jawa Tengah [Inequality Determination in Central Java, Indonesia]," MPRA Paper 77956, University Library of Munich, Germany.
    8. Stefan D. Josten, 2013. "Middle-Class Consensus, Social Capital And The Fundamental Causes Of Economic Growth And Development," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(1), pages 1-26, March.

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    More about this item

    Keywords

    Income Inequality; Economic Growth;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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