ECON 495
Reading 8
Joshua Taylor Milliken
A Local Measure of the Affects of Inequality
“Income inequality and economic growth: An empirical investigation in South Africa” is a
practical extension of “Literature review on income inequality and economic growth,” written by the
same authors. Using the evidence and techniques learned through the literature review, the authors
attempt to use panel data to identify the correlation between income inequality and economic growth in
South Africa, the most unequal country in the world. Through a selection of the mechanisms laid out in
the literature review, they argue there is a ~ linear but time-contingent correlation between inequality
and economic growth. They, too, argue that human capital accumulation differences is the main driver of
inequality. They, therefore, argue in their policy recommendations that access to education should be a
priority to decrease inequality (as well as other generic government reforms). This claim is supported by
their findings but is contingent on their measure of Human Capital.
They use an autoregressive distributed lag (ARDL) model (we are learning this in 427 right now,
so I still have no idea what this really means):
In the theoretical backing of their paper, they take from the assumption of Menkiw, Romer, and
Wild. This is why K, capital and, Population, ~ Labour were included in the equation. Though this backing
is faulty (I have been brainwashed by Prof Carlaw), I do not believe that it biases the analysis as they
found the effects of these variables to be insignificant.
They simultaneously attempt to identify both the short-term and long-term effects of inequality
in their regression. Their findings do not contradict the literature but does question the relative
magnitude of the effect of inequality, especially in the short term. In the short term, they found no
correlation between income inequality and GDPpc growth but did find a negative effect in the long run.
This paper had little to say overall as it drew from the previous research. However, because of
their research, I believe that their setup is a best practice example, and I should look into using their
ARDL setup.
Mdingi, K., & Ho, S.-Y. (2023, June 23). Income inequality and economic growth: An empirical
investigation in South Africa [MPRA Paper]. https://mpra.ub.uni-muenchen.de/117733/