I am pleased to welcome you to thisconference on Income Distribution and Sustainable Growth. As you know,we shall until next July be continuing to celebrate our 50th anniversary–theachievements of our first 50 years and the challenges of the next.

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Finally, the effect of inequality on the fertility rate is consistent with theory and is significantly positive in all estimations. As seen in Table 4, while robust results are obtained for the political instability channel, the results for the political economy channel are different; however, the effect is not significant for most models. The last channel that suggests that income inequality negatively affects economic growth is the differential fertility approach. It is claimed that income inequality determines fertility rates and indirectly affects human capital investment and economic growth negatively. In countries with high fertility rates, economic growth is expected to decline due to diminishing capital per capita. The relationship between income inequality and fertility rate is explained by education level.

Literature Review

As a result, income inequality’s direct effects and https://www.capitecbank.co.za/ indirect effects may be different, especially, as it is found here, the positive effect of savings and investments on economic growth proves that the relationship can differ through this channel. On the other hand, theoretical and empirical studies on the effect of income inequality on economic growth are relatively recent. Several studies have predicted that the effect of income inequality on economic growth will be positive.

Income Inequality and Economic Growth

Trade openness can stimulate economic growth by increasing total factor productivity through technological expansions and increased competition (Grossman & Helpman, 1991; Rivera-Batiz & Romer, 1991). There https://www.coronation.com/ are explanations about positive effects (Tobin, 1965), negative effects (Stockman, 1981) or no effects (Sidrauski, 1967). Inflation is also preferred as the explanatory variable of growth in empirical studies examining the impact of income inequality on economic growth.

Method and Dataset

The fact that the increase in savings encourages economic growth in these countries also reflects that the positive channel may be valid. However, the effect of income inequality on economic growth is positive only for this channel. The fact that inequality does not increase the saving rate in low-income countries as in high-income countries may be related to the relatively low number of wealthy people in these countries. Moreover, this wealthiest part of the population can retain its savings so that future generations can invest in human capital. Finally, Table 7 shows the effect of inequality, a positive channel, on patent and saving rates.

• Investment is used both as a determinant of growth and as a channel variable in this study.
• Therefore, the finding that human capital supports economic growth, as illustrated here, indirectly supports the credit markets imperfections channel.
• These countries are divided into two groups by considering their income levels and they are analysed with panel data econometric techniques.

The Impact of Income Inequality on Economic Growth Through Channels in the European Union

Therefore, the sample could not be divided into more sub-groups such as low-income, lower-middle-income, upper-middle-income and high-income. Similarly, the Gini coefficient, used as an indicator of income inequality, is preferred because it is the largest dataset available recently. Due to data limitation, this relationship could not be tested using a different proxy for income inequality. When the results are evaluated, it can be said that for policymakers, it is becoming more challenging to control income inequality and achieve sustainable growth. Finally, future studies can be extended to consider the effects of the more recently discussed the COVID-19 pandemic (Chen et al., 2021) on income inequality. Table 3 presents the results of the political stability, political economy and fertility channel in low and lower-middle-income countries.

On the other hand, although inequality does not have significant effects directly on political instability, it can still harm economic growth as it negatively affects investment (Nel, 2003). Therefore, although we do not find direct empirical evidence, it can be concluded that the negative impact of agc investment south africa income inequality on economic growth through the socio-political instability channel may be more important in low-income countries. In summary, the relationship between income inequality and economic growth is not very clear and further investigation is needed to understand this relationship more clearly. Although the robustness of the results is controlled by using panel estimation techniques and different indicators, there are also some limitations of this study. Especially in low and lower-middle income countries, there may be missing observations regarding the selected variables. Data limitations prevent detailed analysis using different variables or methods, especially in these countries.

On the other hand, only the effect of agc patrice motsepe inequality on human capital (columns 1–4) shows that the positive channel is not valid. Increasing inequality in low-income countries does not provide incentives for education. In Table 6, the dependent variable tertiary is used for the credit market imperfections channel and human capital channel, and it is approved that the results are robust. Table 19 shows the effects of human capital (from column 1 to 2a) and financial development (from column 3 to 4a) on the economic growth for UHC. Empirical evidence shows that proxies used as both human capital and financial development indicators do not significantly affect economic growth. Although the first stage of the credit markets imperfections channel is confirmed in these countries, unlike LLMC, the validity of the channel cannot be proven because these variables do not have a significant effect on economic growth.