Income Distribution and Economic Growth: Evidence from Islamic Republic of Iran

By Bakhtiari, Sadegh; Meisami, Hossein et al. | Journal of Third World Studies, Fall 2010 | Go to article overview

Income Distribution and Economic Growth: Evidence from Islamic Republic of Iran


Bakhtiari, Sadegh, Meisami, Hossein, Soleimani, Mohamad, Journal of Third World Studies


INTRODUCTION

Purpose--This paper investigates the effects of income distribution on economic growth in Islamic Republic of Iran.

Design/methodology/approach--An endogenous growth model is specified, that includes human capital and technological progress. The generalized autoregressive conditional heteroskedasticity (GARCH) technique is used to estimate regression parameters.

Findings--The results show that rising income inequality, which is measured by the Gini index and the ratio of income of the household at the 90th percentile to the household at the 10th percentile, would hinder economic growth in Iran. However, there is a positive relation between economic growth and the growth in employment, investment spending, technological progress, and human capital.

Practical implications--The main practical implication of the paper is that the effect of a rise in inequality on economic growth is negative in Iran.

Originality/value--The current study is believed to be the first of its kind that enters human capital in the model, uses two different measures of inequality, and focuses on the case of Iran.

In the last decades, the world has witnessed the global expansion of neo-liberal economic ideas and policies, most notably drastic cutbacks in government regulations of economic activities. The belief that economic performance is best enhanced by freeing markets of government interference has become widely accepted among policy planners and politicians on both the left and the right. (1) The most visible examples of purportedly harmful government interference in market processes are social welfare and other redistributive programs. These are widely regarded as both wasteful and harmful, diverting societal resources from more productive use and discouraging initiative and effort. In this view, program outcomes may include a more equitable distribution of income, but at the cost of decreased economic performance.

Neo-liberals justify the economic inequalities associated with markets in terms of efficiency. In their views, by providing a greater incentive for individual hard work and initiative, freer markets are supposed to lead to more competitive national economies and a bigger economic pie for everybody. (2) This neo-liberal argument has impressive academic credentials, a persuasive voice in public policy debates, and decades of worldwide political successes. However, it lacks enough empirical supports. Simply put, there is not persuasive evidence that increasing inequality is associated with improved economic performance. Considering this, there is a need to empirically answer the question that whether the rising income inequality would facilitate or hinder economic growth in different countries.

This study attempts to answer this question in the case of Islamic Republic of Iran. It empirically examines the impact of income inequality on economic growth. An econometric model is used which is based on the endogenous growth model incorporating human capital and technological progress. In this model, Capital growth is replaced by the investment-output ratio to avoid a high degree of multicollinearity among input factors. Two different measures for income inequality are considered in order to determine whether the results are robust. The paper applies the generalized autoregressive conditional heteroskedasticity (GARCH) model developed by Engle and Robert (2001) to determine whether the error variance depends on past squared errors and past error variances.

The study is organized in the following manner. The literature review is described in Section 2. A theoretical model is presented in Section 3 and data sources and methodology are discussed in section 4. Empirical results are given in Section 5. Summary and conclusions are provided in Section 6.

LITERATURE REVIEW

The relation between inequality and growth has been under discussion for a long time. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Income Distribution and Economic Growth: Evidence from Islamic Republic of Iran
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.