Abstract—We conduct empirical analyses on the two-way relationship between income inequality and growth in three groups of income levels, i.e. lower middle, upper middle and high income countries. The data is collected for 31 countries, ranging from 1990 to 2011. Besides, four variables are tested as determinants of growth and income inequality. Applying a panel data approach, our results detect only one-way relationship, i.e. growth influences income inequality. There is no significance effect from income inequality on growth across three groups of countries. Our results also reveal that enrollments of primary education, price level of investment and trade openness have no significance impact on income inequality. These factors have impacts on growth but the impacts vary across countries.

Index Terms—economic growth, income inequality, Gini index, panel data, inverted-U Kuznets curve

Cite: Cheah Ying Lim and Siok Kun Sek, "Exploring the Two-Way Relationship between Income Inequality and Growth," Journal of Advanced Management Science, Vol. 2, No. 1, pp. 33-37, March 2014. doi: 10.12720/joams.2.1.33-37