Income Inequality, Economic Openness and Economic Growth: A Panel Data Study for Middle-Income Countries

Abstract

Income inequality has been growing around the world for decades. Some countries have reduced the number of people living in extreme poverty. But income inequality continues to rise while the rich accumulate unprecedented wealth. Similarly, income inequality between countries has improved, but income inequality within countries has increased. Reducing income inequality is integral to achieving the Sustainable Development Goals. This paper quantifies the links between income inequality, openness and economic growth associated with 31 middle-income countries over the period 2003-2020 using the method of generalized moments. The results suggest that the degree of economic openness and the rate of investment play an important role in economic recovery. Thus, income inequality is found to be a catalyst for economic growth. In addition, factors such as openness and economic growth are responsible for increasing inequality, while the level of education and foreign direct investment reduce it. As a recommendation, middle-income countries should encourage private investment and attract more foreign direct investment to create new jobs. In addition, reforming the education system is a major priority for these countries.

Keywords: Income inequality, Economic openness, Economic growth, Middle income countries, GMM 

JEL Classification : D31 ; F13 ; F21 ; O40

Type of article: Empirical research.