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Inequality, Growth, and Structural Transformation: New Evidence from a Post-communist Economy

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  • Dorina Lazar

    (Babes-Bolyai University)

  • Cristian Marius Litan

    (Babes-Bolyai University)

Abstract

This paper investigates the long-run equilibrium relationship between economic growth and income inequality while documenting the structural transformation of the Romanian economy over the period 1990–2020. First, we examine the structural changes that have accompanied economic development and the historical trend of income inequality to better understand the mechanism connecting inequality and growth. Second, we study the long-term relationship between income inequality and economic development in the framework of the Kuznets hypothesis, using the ARDL bounds testing procedure for cointegration. Data for income inequality come from the most recent revisions of the World Inequality Database. The empirical findings support a nonlinear long-run relationship between income inequality and GDP per capita. The left half of an inverted U-shaped curve is revealed by the data, but the right half is not yet clearly outlined. We also find that the service-driven structural transformation experienced by Romania underlies this pattern. There is an inverted U-shaped relationship between inequality measures and services employment share. Overall, several stylized empirical facts are pointed out regarding the structural changes and the level of development of the Romanian economy, which can be seen as prerequisites of the transition to the right half of the inverted U-shaped curve.

Suggested Citation

  • Dorina Lazar & Cristian Marius Litan, 2024. "Inequality, Growth, and Structural Transformation: New Evidence from a Post-communist Economy," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 66(2), pages 236-260, June.
    • Handle: RePEc:pal:compes:v:66:y:2024:i:2:d:10.1057_s41294-023-00214-w
    DOI: 10.1057/s41294-023-00214-w
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    More about this item

    Keywords

    Income inequality; Economic growth; Post-communist economy; Structural changes; Kuznets curve;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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