On the Dynamic Relationship between Inequality and Economic Growth

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.