Empirical Research On Economic Growth Of Inequality In Income Distribution

The paper analyzes and compares different theoretical models and empirical evidences about the relationship between distribution inequality and economic growth from foreign literatures in recent twenty years. And based on this, the paper will apply panel data model to study two data sets. One is the high-quality panel data of 42 countries from 1966 to 2005, and another is the sample of Chinese 30 districts from 1981 to 2005. The paper tries to test the relationship between inequality and growth from different aspects. The paper will be arranged as follows: Chapter One is introduction; Chapter Two is basic theories, four channels of inequality affecting growth will be respectively described; Chapter Three is empirical evidence, I will analyze and compare three kinds of empirical studies; Chapter Four is the paper's core, I will apply fixed effect and random effect models to study two samples, one is high-quality cross-country panel data, and another is domestic panel data; Chapter Five is conclusion.Results based on international panel data suggest that in the short and medium term, an increase in a country's level of income inequality has a significant positive relationship with subsequent economic growth. Study based on domestic panel data finds there is no evidence to prove that inequality has a significant negative effect on following growth. The paper uses an improved data set on income inequality which not only reduces measurement error, but also allows estimation via a panel technique. So the results are credible. However, there are still drawbacks in choosing variables, estimation methods and data sources,. New stronger evidence is much needed. The paper has two original points. First, it uses higher quality data set. Deininger and Squire(1996) developed the first high quality data set with a total of 2480 Gini coefficients which covers 112 countries for the years 1949-1994. Many economists uses that data set from then on. However, the set is still limited. The paper uses a newly improved high quality data set of Gini coefficients published by UNU/WIDER in 2005, which includes 4664 observations covering 152 countries for the years 1948-2003. In order to construct a balanced panel data, the final sample has 336 Gini coefficients of 42 countries. Second, it is the first time to apply panel data model to analyze the relationship between inequality and growth in China. Because of limited data sources, domestic researches use cross-section or time series data to estimate, and the credibility of empirical results in not very high. The paper makes use of panel data model to study Chinese case incorporating effects of cross-section and time series. So the results are more credible.