Therefore, the increase in the fertility rate in low-income countries damages to economic growth more than in UHC. These results support studies suggesting that the strength of is africa gold capital legit the relationship may be different in developed and developing countries (Berg et al., 2018; Castelló-Climent, 2010; Kremer & Chen, 2002). Lastly, it is observed that the coefficients are significantly negative in all models where the direct effects of the inequality and the channel effect are examined. The results of the credit markets imperfection channel in Table 11 are similar to the results in LLMC.
- As seen in Table 14, while the results are robust for the innovation channel, the negative effect of fixed capital variable on income inequality does not support the Classical approach.
- Implementing regulations to remove restrictions on bank activities and improving infrastructure to ensure access to financial services by large masses are some of the important roles of the government.
- Unlike LLMC, trade openness has a significant positive effect on economic growth in the former country group.
- Also, important inferences can be drawn from empirical studies for a single country, considering the country’s income level.
The Relationship Between Income Inequality and Economic Growth: Are Transmission Channels Effective?
While inequality does not affect redistribution in low-income countries, it positively affects developed countries. The inadequacy of democratic institutions in low-income countries can be considered one of their main problems, so achieving redistribution in these countries can be relatively difficult. Therefore, structural reforms should be implemented in these countries for the institutions that will provide democratic rights and freedoms and at the same time control the effective use of these rights and freedoms. Also, in these countries with low financial development, it may not be possible to collect taxes effectively and direct them to economic activities. Although the effect of political instability on economic growth is negative for both country groups, its relation to income distribution is different. When the two group estimates are interpreted together, the results imply that the relationship may not be linear, as Blanco and Grier (2009) stated.
Income Inequality and Economic Growth
De facto, bytrying to create conditions for high-quality growth, our policy adviceoften has, implicitly, a distributional content. This is my second question and https://fnb.co.za/ is the central issue to whichthis conference is devoted. 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.
Literature Review
It is observed that income inequality does not promote human capital investment and innovative activities. Income inequality does not increase total savings in LLMC, contrary to the classical view, while significant positive effects in UHC indicate the importance of income level. The fact that the increase in savings encourages economic growth in these countries also reflects that the positive channel may be valid.
Method and Dataset
Thus, it is possible to identify whether the channel effect changed for country income levels. The average, standard deviation, minimum and maximum values of the variables are shown in the table. In summary, although the validity of many channels is theoretically mentioned, only one or a few of the channels are tested in the empirical literature. On the other hand, as stated above, since the complexity of the relations may also depend on the development level of the countries, these conditions should be taken into consideration. There is growing recognition that an excessively unequal income distributionmay itself be detrimental to sustainable growth. Couldn’t cost-effectiveprograms aimed at reducing excessive income and consumption inequality,in the context of macroeconomic stability and allocative efficiency, promote,not deter, sustainable economic growth?
Considering that low-income countries also have relatively high levels of inequality, it can be said that these countries may have exceeded this threshold. The policies used to overcome the adverse effects of income inequality on political stability are not independent of those proposed by other transmission channels. Governments should reduce corruption and regulate financial markets to ensure equal education and business creation opportunities. In addition, it should implement tax policies that encourage individuals to work, not reduce their motivation. In https://www.capitecbank.co.za/ the relationship between inequality and growth, the fact that credit constraints are significant only in countries at the initial stage of development supports the theoretical view of Castells-Quintana and Royuela (2017) and Galor and Moav (2004).
Paul and Verdier (1996) stated that redistribution may not always be detrimental to growth. Finally, as expected, the effect of the fertility rate on economic growth is negative (columns 5 and 5a). Income inequality increases the fertility in UHC, and as the fertility rate increases, income inequality harms economic growth. The negative impact of inequality on human capital in these countries also supports the validity of the fertility channel expressed by De La Croix and Doepke (2003). In addition, Also, a remarkable result here is that the effect of fertility on economic growth is significantly lower than LLMC.