"Inequality, Growth and Investment"

Transcription

1 "Inequality, Growth and Investment" Robert Barro Fall 2012 Barro () ECON435/835 Fall / 5

2 Inequality Data Historical data on income shares of top 20% population relative to bottome 40 % Early estimates of Gini coe cent by Jain (1975) High quality Gini coe cients over income and land distribution,! rst compiled, analyzed and discussed by Deininger and Squire (1998) Barro () ECON435/835 Fall / 5

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4 The Evidence Inequality and Per Capita Income Kuznets (1955) inverted U shaped relationship,! con rmed in cross country data (Summers, Kravis and Heston, 1984),! true for several developed economies with long historical time series BUT little time series evidence to support Kuznets hypothesis in LDCs.,! Fields and Jakubsen (1994) Deininger and Squire (1998) Barro (2001):,! Kuznets curve emerges as a clear empirical regularity in panel data (after controlling for other factors),! per capita income does not account for much of the variation in inequality across countries or over time. Barro () ECON435/835 Fall / 5

5 Table 6 Determinants of Inequality Variable No fixed effects Fixed effects log(gdp) (0.090) log(gdp) squared (0.0056) Dummy: net income or spending Dummy: individual vs. household data (0.081) (0.0051) (0.0094) (0.0086) (0.078) (0.0049) (0.0087) (0.0080) (0.084) (0.0053) (0.0094) (0.0087) (0.013) (0.0014) (0.0108) (0.0078) Primary schooling (0.0037) (0.0036) (0.0037) (0.0091) Secondary schooling (0.0070) (0.0070) (0.0070) (0.0099) Higher schooling (0.034) (0.032) (0.034) (0.030) Dummy: Africa (0.015) (0.016) (0.015) Dummy: Latin Amer (0.012) (0.012) (0.012) -- Rule-of-law index (0.019) Democracy index (0.015) -- Number of observations 49, 61 68, 76 40, 59 61, 70 40, 57 56, 67 35, 59 61, 70 36, 56 57, 59 R-squared 0.12, , , , , , ,

6 Figure 4 Scatter of Gini against log(gdp) Gini coefficient log(gdp)

7 Gini coefficient (unexplained part) Figure 5 Gini Coefficient versus log(gdp) log(gdp)

8 Evidence Inequality and Productivity Growth Negative impact of inequality on subsequent growth in per capita income in long term Persson and Tabellini (1994),! historical data for 9 developed countries (from 1850 at 20 year intervals),! post-war cross-sectional observations for 56 countries ( ) Alesina and Rodrik (1994),! negative impact of land inequality using 70 countries ( ) Perotti (1996) robustness to di erent measures of inequality and speci cations Deininger and Squire (1998) con rm using high quality data set Barro () ECON435/835 Fall / 5

9 270 ( ) K. Deininger, L. SquirerJournal of DeÕelopment Economics Table 3 Growth regression Ž with income and land inequality All countries Developing countries a Intercept Ž Ž Ž Ž Ž Ž Ž Ž Investment Ž Ž Ž Ž Ž Ž Ž Ž Initial GDP y0.302 y0.205 y0.288 y0.264 y0.308 y0.248 y0.301 y0.338 Ž Ž Ž Ž Ž Ž Ž Ž Income Gini y0.047 y0.019 y0.025 y0.019 y0.018 y0.045 Ž Ž Ž Ž Ž Ž Land Gini y0.034 y0.022 y0.037 y0.027 y0.039 y0.053 Ž Ž Ž Ž Ž Ž Latin Dummy y0.530 y Ž Ž Ž Ž Africa Dummy y0.214 y Ž Ž Ž Ž Asia Dummy Ž Ž Ž Ž R2 adj No. Obs a Only developing countries with a population of more than two million have been included. Here and in all subsequent tables, figures in brackets denote t-values.

10 Positive relationship between inequality and growth in the short term Forbes (2000) uses panel data for a cross section of countries (5 year intervals),! positive relationship at 5 year intervals,! no signi cant relationship at 10 year intervals,! negative relationship in cross section Barro (2001) nds weak overall impact of inequality on growth in panel data (10 year intervals),! negative relationship for poorer countries and a positive relationship for richer ones.,! depends on inclusion of fertility rate negative once this is dropped Barro () ECON435/835 Fall / 5

11 Table 1 Panel Regressions for Growth Rate Independent variable Estimated coefficient in full sample Estimated coefficient in Gini sample log(per capita GDP) (0.027) (0.030) log(per capita GDP) squared (0.0018) (0.0019) govt. consumption/gdp (0.023) (0.027) rule-of-law index (0.0053) (0.0065) democracy index (0.029) (0.033) democracy index squared (0.026) (0.028) inflation rate (0.010) (0.009) years of schooling (0.0017) (0.0017) log(total fertility rate) (0.0047) (0.0054) investment/gdp (0.022) (0.021) growth rate of terms of trade (0.028) (0.035) numbers of observations 79, 87, 84 39, 56, 51 R , 0.48, , 0.62, 0.60

12 Table 2 Panel Regressions for Investment Ratio Independent variable Estimated Coefficient in full sample Estimated Coefficient in Gini sample log(per capita GDP) (0.083) (0.111) log(per capita GDP) squared (0.0053) (0.0070) govt. consumption/gdp (0.072) (0.104) rule-of-law index (0.020) (0.025) democracy index (0.078) (0.123) democracy index squared (0.068) (0.103) inflation rate (0.027) (0.028) years of schooling (0.0058) (0.0065) log(total fertility rate) (0.0140) (0.0187) growth rate of terms of trade (0.067) (0.114) numbers of observations 79, 87, 85 39, 56, 51 R , 0.60, , 0.64, 0.69 Notes: The dependent variable is the ratio of real investment (private plus public) to real GDP. The measure is the average of the annual observations on the ratio for each of the periods , , and See the notes to Table 1 for other information.

13 Table 4 Effects of Gini Coefficients on Growth Rates and Investment Ratios Growth rate regressions fertility variable omitted Investment ratio regressions fertility variable omitted Gini (0.018) (0.141) (0.017) (0.156) (0.070) 0.54 (0.47) (0.066) 0.50 (0.48) Gini* log(gdp) (0.018) (0.020) (0.062) (0.062) Gini (low GDP) (0.021) (0.018) Gini (high GDP) (0.025) (0.034) Wald tests (pvalues) , 0.003* , 0.99*

14 Figure 1 Growth Rate versus Gini Coefficient growth rate (unexplained part) Gini coefficient

15 Figure 2 Growth Rate versus Gini Coefficient (taking account of Gini-log[GDP] interaction) 0.10 growth rate (unexplained part) Gini coefficient