Does inequality benefit growth? New evidence using a panel VAR approach
International Journal of Development Issues
ISSN: 1446-8956
Article publication date: 31 January 2020
Issue publication date: 31 March 2020
Abstract
Purpose
This paper aims to investigate the dynamic relationship between economic growth and income inequality, an issue that has not found a clear consensus in the literature.
Design/methodology/approach
The paper uses a Panel VAR approach, using state-level data for Brazil, to assess the dynamic effects of inequality on economic growth and vice versa.
Findings
The paper shows that inequality shocks lead to higher economic growth, therefore supporting the view that, in poor countries, higher inequality does benefit economic growth. The paper also presents evidence that higher growth leads to lower income inequality. The results are robust to different inequality measures and when a measure of human capital accumulation is included in the estimation.
Originality/value
Recent evidence has favored the idea that higher inequality hurts economic growth. This paper shows that this might not be the case when the dynamic relationship between growth and inequality is examined in a developing country with high inequality and capital market imperfections.
Keywords
Citation
Silva, M.E.A.d. (2020), "Does inequality benefit growth? New evidence using a panel VAR approach", International Journal of Development Issues, Vol. 19 No. 1, pp. 63-76. https://doi.org/10.1108/IJDI-05-2019-0088
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited