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Effects of Income Inequality on Economic Growth: The Case of the Republic of Moldova

Author

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  • Rodica Pisica

    (Academy of Economic Studies of Moldova)

Abstract

As the interdependence between the economic inequality and growth is not straightforward and rather ambiguous, in this article we are testing two hypotheses: the economic growth could be affected by inequality in income distribution and the income inequality is likely to have a negative effect on the economic growth of Moldova. Even though we admit a potential influence of other variables, we conclude that the first hypothesis is true as the econometric measurements have shown a moderate to strong effect of income inequality indicators on the growth variable. At the same time, the analyzed data have shown that with the decrease of inequality, an increasing trend in economic growth is noted. Concurrently, when the inequality expressed by the ratio between the incomes of the population in quintiles I and V increases, we observe a decrease in GDP (PPP) and therefore an economic decline in Moldova, thus proving the second hypothesis.

Suggested Citation

  • Rodica Pisica, 2022. "Effects of Income Inequality on Economic Growth: The Case of the Republic of Moldova," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 407-416, September.
    • Handle: RePEc:ovi:oviste:v:xxii:y:2022:i:1:p:407-416
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    References listed on IDEAS

    as
    1. Abigail McKnight, 2019. "Understanding the relationship between poverty, inequality and growth: a review of existing evidence," CASE Papers /216, Centre for Analysis of Social Exclusion, LSE.
    2. E. Wesley F. Peterson, 2017. "Is Economic Inequality Really a Problem? A Review of the Arguments," Social Sciences, MDPI, vol. 6(4), pages 1-25, December.
    3. Maksym Ivanyna & Andrea Salerno, 2021. "Governance for Inclusive Growth," IMF Working Papers 2021/098, International Monetary Fund.
    4. Ms. Valerie Cerra & Mr. Ruy Lama & Norman Loayza, 2021. "Links Between Growth, Inequality, and Poverty: A Survey," IMF Working Papers 2021/068, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    economic growth; income inequality; distribution; econometric measurement; income gap.;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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