Inequality and Economic Growth: An Empirical Investigation

The last decade has seen a revival of interest in the relationship between income inequality and economic growth. This research has employed a range of theoretical frameworks and yielded conflicting empirical results. While earlier evidence suggested a negative tradeoff between growth and inequality, more recent studies have tended to support a positive relationship between growth and income inequality. This paper empirically investigates the relationship between income inequality and economic growth. The research questions addressed in this paper are: Is there a relationship between inequality and economic growth? If so, what is the nature of that relationship? Is it a negative or a positive relationship? Is there a difference between the short-term and long-term relationship of these variables? Are there other exogenous or endogenous variables that have some effects on these variables and thus might affect the nature and the direction of their relationship?