Inequality and growth

Abstract

Inequality is a phenomenon which is analysed from many points of view. Several studies find that inequality is positive for economic growth whereas some other reports believe it is unfavourable for the economy’s improvement. This project aims to provide a small contribution to the relationship between income inequality and economic growth rate. For this purpose, I have used a theoretical model of endogenous growth that proves the connection between the GDP growth rate and income inequality. This model is tested empirically for the period 1970-2010 by using a series of Organisation for Economic Co-operation and Development (OECD) countries and some other countries such as Mauritius, Malaysia, China, etc. The results that I have obtained on how inequality affects on economic growth indicated that the greater income inequality, the greater economic growth becomes in a country.