Reassessing the Relationship between Economic Growth and Inequality

This study attempts to reassess the relationship between economic growth and inequality using an up to date data set, 2003-2007, for a sample of seventy-four developed and developing countries. Average economic growth during this studied period is regressed against the 2003 values of inequality, growth, education, human development, inflation and governance quality using OLS cross-country models. The findings support a negative impact of inequality on economic growth for the entire sample. In particular, an increase (decrease) in inequality would lead to greater deterioration (expansion) in economic development in low-income countries than in high-and middle-income countries. Furthermore, improvement in governance does not either stimulate or hinder the economic growth.