The Effect of Urbanization and Industrialization on Income Inequality: An Analysis Based on the Method of Moments Quantile Regression

In this study, we investigate the effects of urbanization and industrialization on income inequality within the Kuznets curve hypothesis in low-, middle- and high- income countries over the period 1990-2014. Using the method of moments quantile regression (MMQR), the study finds out mixed results about the distributional effects of both urbanization and industrialization within the three panels. In high-income countries (HIC), urbanization increases inequality from the third quantile, while industrialization reduces inequality in most low and middle quantiles and becomes insignificant in the higher quantiles. In the upper -middle income countries (UMIC), urbanization has no significant effect in low and middle quantiles but leads to a significant increase in inequality in higher quantiles. In contrast to the improvement effect of industrialization on income distribution in HIC, it rises the inequality in UMIC. The results also show that urbanization reduces inequality, while industrialization has no significant effect in all quantiles of lower -middle income countries (LMIC). We also find out evidence of the existence of an inverted Kuznets-curve relationship in both UMIC and LMIC. These different results lead to consider income level differentials between countries when examining the distributional effects of both urbanization and industrialization.