Growth-Distribution Nexus: Cross-Country Panel Evidences

Abstract

This study empirically analyzed the reciprocal relationship between economic growth and income distribution. Using 3 stages least squares estimator on simultaneous equations model, the analysis suggested that (1) per capita GDP growth and labor income share, a measure of functional income distribution, have a positive correlation, and (2) per capita GDP growth and Gini index, a measure of personal income distribution, also have a positive correlation. Since it is commonly considered that it is desirable for labor income share to increase and for Gini index to decrease, such results indicate that economic growth and functional income distribution have beneficial relationship, whereas economic growth and personal income distribution have an adverse relationship. Considering that existing studies mostly focused on the relationship between economic growth and personal income distribution, the primary contribution of this study is that it extended the empirical analysis on growth-distribution nexus to the range of economic growth-functional income distribution relation, and empirically found that the relationship between economic growth and functional income distribution is different from the relationship between economic growth and personal income distribution.