Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations

Development and Comp Systems from University Library of Munich, Germany

Abstract: It is well known from nonlinear aggregation theory that distributions play a central role in the determination of aggregate relations. This paper establishes a bridge between the aggregation and the inequality and growth literature by applying a log-linear aggregation method to a simple heterogeneous AK growth model. The aggregation effect is explicitly captured in the growth equation by the changes of the mean logarithmic deviation (MLD or Theil’s second measure) of the income, implying that increases in income inequality may be unambiguously associated with temporary increases in a country’s growth rate, in agreement with the empirical findings of Forbes (AER, 2000). Consequently, empirical studies of the long-run effects of income inequality may suffer from aggregation bias if the temporary effects of the MLD changes are not considered. The accelerated growth episodes observed in Brazil and China demonstrate that the increase in income inequality may have resulted in substantial temporary increases in the aggregate growth rates experienced by those countries.

Keywords: Inequality; Growth; Income Distribution; Aggregation; Heterogeneity; AK Model; Brazil; China (search for similar items in EconPapers)
JEL-codes: O15 O41 O50 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-11-26
New Economics Papers: this item is included in nep-cna, nep-dev and nep-sea
Note: Type of Document - pdf; pages: 22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/dev/papers/0511/0511028.pdf (application/pdf)

Related works:
Working Paper: Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations (2004)
Working Paper: Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpdc:0511028

Access Statistics for this paper

More papers in Development and Comp Systems from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().