Income inequality, economic growth, and structural changes in Egypt: new insights from quantile cointegration approach

Income inequality is an important issue in achieving sustainable growth in developing economies. However, there is a dearth of studies that examine the distributional effects of structural changes accompanying economic development policies in developing economies, especially Egypt. This study examines how income inequality has been affected by economic growth and the structural changes that have occurred in Egypt during the previous four decades. Unlike many empirical studies, the study applies an asymmetric methodology to capture the potential nonlinear effects of growth and structural changes on different locations of income inequality using the Quantile Autoregressive Distributed Lags model (QARDL). Results confirm an asymmetric cointegration relationship among variables and the speed of adjustment to catch up with the long-run equilibrium path differs significantly across different quantiles which confirms the asymmetric behavior. While the disequilibrium is corrected in the short run at a speed of 65 to 64% for the lower quantiles, the speed slows down to reach 55 to 58% at the upper locations of the Gini coefficient. Economic growth has a heterogeneous effect across different quantiles of inequality; moreover, the inverted U-shaped relationship is confirmed only across the lower half of quantiles. This implies that the Kuznets hypothesis is valid only when inequality becomes lower than its current levels in Egypt. Results also confirm the high improving distributional effect of urbanization in Egypt across all quantiles. Thus, it is useful for economic policymakers to implement policies that accelerate the urbanization process to reduce income inequality in Egypt.