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Growth and Inequality: Evidence from Transitional Economies

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  • Oleksiy Ivaschenko

Abstract

The transitional economies of Eastern Europe (EE) and the former Soviet Union (FSU) experienced a dramatic increase in income inequality in the 1990s. In this paper I investigate the causes of unprecedented changes in income distribution using a unique panel of inequality estimates for 24 transitional countries for the period 1989-1998. The fixed effects model is used to control for unobservable country-specific effects that result in a missing-variable bias in cross-sectional studies. The relationship between income inequality, measured by Gini coefficient, and per capita GDP is shown to be positive for EE, but negative for the FSU. Economic liberalization, privatization and deindustrialization are found to have contributed to the rise in income inequality in the transitional region. Hyperinflation also makes the distribution of income more unequal. I do not find strong support for unemployment and the size of government consumption affecting income distribution. While civil conflicts increase income inequality, the extent of political rights and civil liberties is not found to directly affect income distribution.

Suggested Citation

  • Oleksiy Ivaschenko, 2002. "Growth and Inequality: Evidence from Transitional Economies," CESifo Working Paper Series 746, CESifo.
    • Handle: RePEc:ces:ceswps:_746
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    1. Thurow, Lester C, 1970. "Analyzing the American Income Distribution," American Economic Review, American Economic Association, vol. 60(2), pages 261-269, May.
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    1. Lukach, R. & Plasmans, J.E.J., 2002. "Measuring Knowledge Spillovers using Patent Citations : Evidence from the Belgian Firm's Data," Other publications TiSEM d78bf59a-e0ff-4451-86b9-1, Tilburg University, School of Economics and Management.
    2. Keane, Michael & Prasad, Eswar, 2001. "A Political Economy Perspective on Redistribution and Growth in Transition," MPRA Paper 54289, University Library of Munich, Germany.
    3. Abdur R. Chowdhury, 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," Macroeconomics 0303006, University Library of Munich, Germany.
    4. Abdur R Chowdhury, 2004. "Private Savings in Transition Economies: Are there Terms of Trade Shocks?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(4), pages 487-514, December.
    5. repec:zbw:bofitp:2003_003 is not listed on IDEAS
    6. Mark Gradstein & Branko Milanovic, 2004. "Does Libertè = Egalité? A Survey of the Empirical Links between Democracy and Inequality with Some Evidence on the Transition Economies," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 515-537, September.
    7. Milanovic, Branko, 2003. "Is inequality in Africa really different ?," Policy Research Working Paper Series 3169, The World Bank.
    8. Jens Holscher & Cristiano Perugini & Fabrizio Pompei, 2011. "Wage inequality, labour market flexibility and duality in Eastern and Western Europe," Post-Communist Economies, Taylor & Francis Journals, vol. 23(3), pages 271-310.
    9. David Aristei & Cristiano Perugini, 2014. "Speed and Sequencing of Transition Reforms and Income Inequality: A Panel Data Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(3), pages 542-570, September.
    10. Svilena MIHAYLOVA, 2015. "Foreign direct investment and income inequality in Central and Eastern Europe," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(603), S), pages 23-42, Summer.
    11. Chowdhury, Abdur R., 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," BOFIT Discussion Papers 3/2003, Bank of Finland Institute for Emerging Economies (BOFIT).
    12. Chowdhury, Abdur R., 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," BOFIT Discussion Papers 3/2003, Bank of Finland, Institute for Economies in Transition.
    13. Svilena MIHAYLOVA & Silviya BRATOEVA-MANOLEVA, 2018. "Structural changes and wage inequality in the Bulgarian economy," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 9, pages 205-227, December.
    14. Nauro F. Campos & Paul De Grauwe & Yuemei Ji, 2017. "Structural Reforms, Growth and Inequality: An Overview of Theory, Measurement and Evidence," CESifo Working Paper Series 6812, CESifo.
    15. Jeffrey B. Miller & Stoyan Tenev, 2005. "State and Ownership Reforms in Transition Economics: China vs. the Orthodoxy," Working Papers 05-10, University of Delaware, Department of Economics.
    16. Keane, Michael & Prasad, Eswar, 2001. "Social Transfers and Inequality During the Polish Transition," MPRA Paper 54326, University Library of Munich, Germany.
    17. Facundo Alvaredo & Leonardo Gasparini, 2013. "Recent Trends in Inequality and Poverty in Developing Countries," CEDLAS, Working Papers 0151, CEDLAS, Universidad Nacional de La Plata.
    18. Slawomir Kuzmar & Dawid Piatek, 2019. "Institutional determinants of inequality in chosen post-socialist countries: the role of political freedom," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 18(3), pages 295-315, September.
    19. Mitra, Pradeep & Yemtsov, Ruslan, 2006. "Increasing inequality in transition economies : is there more to come?," Policy Research Working Paper Series 4007, The World Bank.
    20. repec:agr:journl:v:2(602):y:2015:i:2(602):p:23-42 is not listed on IDEAS
    21. Campos, Nauro F. & De Grauwe, Paul & Ji, Yuemei, 2023. "Structural reforms and economic performance: the experience of advanced economies," LSE Research Online Documents on Economics 120870, London School of Economics and Political Science, LSE Library.
    22. Aristei, David & Perugini, Cristiano, 2012. "Inequality and reforms in transition countries," Economic Systems, Elsevier, vol. 36(1), pages 2-10.

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