This thesis examines the effects income inequality has on economic growth, drawing on data from China. It focuses on two related questions: whether income inequality is harmful to economic growth and, if so, why.The first empirical chapter uses a newly-developed panel dataset at the province level to examine the long-run impact of income inequality on economic growth, addressing the problem of spurious regression that affects much of the existing literature. The empirical results indicate that the long-run effect of income inequality on economic growth is non-linear: while income inequality exerts a positive impact on economic growth for rich provinces, it is harmful to economic growth for poor regions.The second empirical chapter provides mathematical and empirical evidence that demonstrates the deficiencies in existing studies that solely rely on macroeconomic data. It examines three mainstream transmission mechanisms by using data at both the household and village level. At the village level, the empirical results show that income inequality leads to lower economic growth. However, at the household level, income inequality is positively linked to income growth for households with low levels of initial income. Such seemingly contradictory results agree with the predictions of my mathematical example and suggest that the political economy channel is responsible for the inequality-growth relationship in rural China.The last empirical chapter examines whether inequality and growth are linked across generations by evaluating the impact of the One Child Policy on fertility and education in China. Using a difference-in-differences approach, the empirical results suggest that the One Child Policy successfully lowered the probability of having a child for Han women and increased the probability of attending school for Han children. This empirical evidence indicates that the endogenous fertility channel operates in China.
|Date of Award||8 May 2018|
|Supervisor||Kerry Papps (Supervisor) & Ajit Mishra (Supervisor)|
- Income Inequality
- Economic Growth
- Transmission Mechanisms