Determinants of Inequality

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Determinants of Inequality

  1. 1. Determinants of Inequality Fakultät Wirtschaftswissenschaften Lehrstuhl für Wachstums- und Konjunkturtheorie Prof. Dr. Thomas Gries – Module W4412 Global Growth Sherif Elkoumy and Rainer Grundmann 15 Jul 2008
  2. 2. Agenda 1. Introduction 2. Stylized Facts 3. Theory 4. Empirics 5. Conclusion15 Jul 2008 Elkoumy/Grundmann - Inequality 2
  3. 3. Introduction • Growth, Urbanization Increased • Urbanization leads to social problems • Change in inequality is a result of growth and urbanization processes • Inequality has been an ongoing concern for economists and scholars worldwide • Inequality is a part of development economics15 Jul 2008 Elkoumy/Grundmann - Inequality 3
  4. 4. Stylized facts Growth (output) : World Economic Growth 9 8 7 Annual Growth % 6 5 World 4 OECD 3 2 Low Income 1 0 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 -1 -2 Year Source: Data from Worldbank (2008)15 Jul 2008 Elkoumy/Grundmann - Inequality 4
  5. 5. Stylized facts Urbanization/Population growth: Source: United Nations (2008b)15 Jul 2008 Elkoumy/Grundmann - Inequality 5
  6. 6. Stylized facts Relation Gini-Index and Income: Source: Data from Wolrdbank (2008) and Human Development Reports (2008)15 Jul 2008 Elkoumy/Grundmann - Inequality 6
  7. 7. Theory Measuring Inequality: • Gini-coefficient • Most important measure for income inequality • Based on the Lorenz curve Source: Answers.com (2008)15 Jul 2008 Elkoumy/Grundmann - Inequality 7
  8. 8. Theory Kuznets theory: • developed 1955 • early stages inequality increases • then decreases again • structual transformation (agricultural, industrial sector) • Smith and Todaro: whether shape is shown depends on type of Source: after Smith and Todaro (2003) structual change • Empirical works suggest that it rather works for cross-country data15 Jul 2008 Elkoumy/Grundmann - Inequality 8
  9. 9. Empirics Model (1):• 59 % (R2) of GINIexplained• FDI: positve relation• GNI negative• Coeffients notsignificantly differentfrom 015 Jul 2008 Elkoumy/Grundmann - Inequality 9
  10. 10. Empirics Model (2):• 60 % (R2) of GINIexplained• GNI negative• OECD makes a cleardifference• Coefficients notsignificantly differentfrom 015 Jul 2008 Elkoumy/Grundmann - Inequality 10
  11. 11. Conclusion • Statistics do not give clear evidence on GINI explanation • Theory of Kuznets asks for an inverted u- curve • Estimated model does not allow for this results blurred • Increase sample size and improve variables that indicate development stage • Equation estimation leads to a coefficient significantly differing from 0 • still overall fit only 43% • use exponential equations15 Jul 2008 Elkoumy/Grundmann - Inequality 11
  12. 12. SourcesSimon Kuznets, 1955. Economic Growth and Income Inequality. The American Economic Review, 45(1), 1-28.Smith, S.C. & Todaro, M.P., 2003. Economic Development 8th ed., Boston: Addison Wesley.Human Development Report, 2008. Human Development Report 2008. Available at: http://hdrstats.undp.org/indicators/ [Accessed July 13, 2008].United Nations, 2008b. World Urbanization Prospects: The 2005 Revision. Available at: http://www.un.org/esa/population/publications/WUP2005/ 2005WUP_FS5.pdf [Accessed July 9, 2008].Worldbank, 2008. DDP Quick Query. Available at: http://ddp-ext.worldbank.org/ext/ DDPQQ/member.do?method=getMembers&userid=1&queryId=135 [Accessed July 9, 2008] 15 Jul 2008 Elkoumy/Grundmann - Inequality 12
  13. 13. Thank you for your attention!15 Jul 2008 Elkoumy/Grundmann - Inequality 13

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