A Nonparametric and Semiparametric Analysis on the Inequality-Development Relationship

WTO Workshop, WTO Secretariat (Centre William Rappard). Geneva, September 28, 2010

36 Pages Posted: 30 Nov 2015

See all articles by Kui-Wai Li

Kui-Wai Li

City University of Hong Kong (CityU) - Department of Economics & Finance

Xianbo Zhou

Sun Yat-sen University (SYSU) - Lingnan (University) College

Date Written: September 28, 2010

Abstract

This paper studies the income inequality and economic development relationship by using unbalanced panel data of OECD and non-OECD countries for the period 1962-2003. The nonparametric estimation results show that income inequality in OECD countries are almost on the backside of the inverted-U relationship, while non-OECD countries are approximately on the foreside, except that the relationship in both country groups shows an upturn at a high level of development. Development has an indirect effect on inequality through control variables, but the modes are different in the two groups. The model specification tests show that the relationship is not necessarily captured by the conventional quadratic function. The cubic and fourth-degree polynomials, respectively, fit the OECD and non-OECD country groups best. Our finding is robust regardless whether the specification uses control variables. Development plays a dominant role in mitigating inequality.

Keywords: Kuznets inverted-U; Nonparametric and semiparametric models; Unbalanced

JEL Classification: C14, C33, O11

Suggested Citation

Li, Kui-Wai and Zhou, Xianbo, A Nonparametric and Semiparametric Analysis on the Inequality-Development Relationship (September 28, 2010). WTO Workshop, WTO Secretariat (Centre William Rappard). Geneva, September 28, 2010, Available at SSRN: https://ssrn.com/abstract=2696619 or http://dx.doi.org/10.2139/ssrn.2696619

Kui-Wai Li (Contact Author)

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

Hong Kong

Xianbo Zhou

Sun Yat-sen University (SYSU) - Lingnan (University) College ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

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