determinants of inequality

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Determinants of Inequality 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

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Page 1: Determinants of Inequality

Determinants of InequalityDeterminants of InequalityFakultät Wirtschaftswissenschaften

Lehrstuhl für Wachstums- und Konjunkturtheorie

Prof. Dr. Thomas Gries – Module W4412 Global Growth

Sherif Elkoumy and Rainer Grundmann 15 Jul 2008

Page 2: Determinants of Inequality

AgendaAgenda

1. Introduction

2. Stylized Facts

15 Jul 2008 Elkoumy/Grundmann - Inequality 2

3. Theory

4. Empirics

5. Conclusion

Page 3: Determinants of Inequality

IntroductionIntroduction

• 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

15 Jul 2008 Elkoumy/Grundmann - Inequality 3

concern for economists and scholars

worldwide

• Inequality is a part of development

economics

Page 4: Determinants of Inequality

Stylized factsStylized facts

Growth (output) :

World Economic Growth

5

6

7

8

9

An

nu

al G

row

th %

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-2

-1

0

1

2

3

4

5

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

Year

An

nu

al G

row

th %

World

OECD

Low Income

Source: Data from Worldbank (2008)

Page 5: Determinants of Inequality

Stylized factsStylized facts

Urbanization/Population growth:

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Source: United Nations (2008b)

Page 6: Determinants of Inequality

Stylized factsStylized facts

Relation Gini-Index and Income:

15 Jul 2008 Elkoumy/Grundmann - Inequality 6

Source: Data from Wolrdbank (2008) and Human Development Reports (2008)

Page 7: Determinants of Inequality

TheoryTheory

Measuring Inequality: • Gini-coefficient• Most important measure for

income inequality• Based on the Lorenz curve

15 Jul 2008 Elkoumy/Grundmann - Inequality 7

Source: Answers.com (2008)

Page 8: Determinants of Inequality

TheoryTheory

Kuznets theory: • developed 1955• early stages inequality

increases• then decreases again• structual transformation

(agricultural, industrial

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(agricultural, industrial sector)

• Smith and Todaro: whether shape is shown depends on type of structual change

• Empirical works suggest that it rather works for cross-country data

Source: after Smith and Todaro (2003)

Page 9: Determinants of Inequality

EmpiricsEmpirics

Model (1):

• 59 % (R2) of GINI

explained

• FDI: positve relation

• GNI negative

• Coeffients not

15 Jul 2008 Elkoumy/Grundmann - Inequality 9

• Coeffients not

significantly different

from 0

Page 10: Determinants of Inequality

EmpiricsEmpirics

Model (2):

• 60 % (R2) of GINI

explained

• GNI negative

• OECD makes a clear

difference

15 Jul 2008 Elkoumy/Grundmann - Inequality 10

difference

• Coefficients not

significantly different

from 0

Page 11: Determinants of Inequality

ConclusionConclusion

• 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

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• 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 equations

Page 12: Determinants of Inequality

SourcesSources

Simon 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.

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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]

Page 13: Determinants of Inequality

Thank you for your attention!

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