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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 35, No. 3, pp.241-260
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2022
Received 26 May 2022 Accepted 24 Jun 2022
DOI: https://doi.org/10.22904/sje.2022.35.3.002

On the Dynamic Relationship between Inequality and Economic Growth

Jeyoung Moon ; Dong Heon Kim
Jeyoung Moon, Ph.D. student, Department of Economics, Ohio State University, U.S moon.430@buckeyemail.osu.edu
Dong Heon Kim, Corresponding Author, Professor, Department of Economics, Korea University, South Korea dongkim@korea.ac.kr

JEL Classification: C11, C23, O11, O15

Abstract

This study reexamines the nonlinear relationship between inequality economic growth in the dynamic context and addresses the nonlinear function and the nature of its nonlinearity. Nonlinear flexible inference was used for the unknown functional relation with estimation results based on the panel data set of 77 countries for the period 1982–2019, confirming earlier findings for the nonlinear relationship between inequality and growth. Particularly, there exists a threshold value in the Gini Coefficient and level of inequality when it is greater than the threshold value, the decrease in inequality seems to enhance economic growth and if the level is less than the threshold value, the reduction in inequality appears to impede economic growth. The inclusion of the threshold specification appears to characterize the nonlinear relationship adequately, thus capturing the nature of nonlinearity.

Keywords:

Economic growth, Income inequality, Nonlinearity, Threshold value, Flexible inference

Acknowledgments

The part of this paper has been based on the Jeyoung Moon’s MA dissertation at the Korea University. The authors thank James D. Hamilton and seminar participants on the 2020 Japanese Society of International Economics Conference and the 2021 Korea and World Economy Conference. Dong Heon Kim thanks the Korea University Research Grant.

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