Genetic distance, economic growth and top income shares: evidence from OECD countries

Anjan K. Saha, Vinod Mishra

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

Abstract

The relationship between economic growth and income inequality remains a puzzle in the literature. The main problem has been finding a way to account for the endogeneity of growth. Using century-long data of 14 OECD countries, this study disentangles the growth–inequality relationship. In doing so, our main contribution is employing genetic and geographical distances as instruments for economic growth. The instruments are constructed on the premise that the growth of one country spills over to the others if they are connected through trade and other forms of exchange; however, the genetic and geographical distances between countries represent barriers to such spillovers. Using alternative specifications and measures, we find that growth reduces the inequality measured by top income shares. As capital share increases in the growth process and capital substitutes labour, inequality-reducing strength of growth declines. Another important finding is that the effect of growth on top income shares is more significant among the highest income groups.

Original languageEnglish
Pages (from-to)37-47
Number of pages11
JournalEconomic Modelling
Volume92
DOIs
Publication statusPublished - Nov 2020

Keywords

  • Economic growth
  • Genetic distance
  • Income inequality
  • Top income shares

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