How Does Inequality Affect Long-Run Growth?

Gutiérrez-Romero, Roxana. 2017. How does inequality affect long-run growth? Queen Mary University of London, CGR Working Paper No. 84

32 Pages Posted: 18 Oct 2017

Date Written: September 17, 2017

Abstract

This article shows that countries with higher historical levels of income inequality, dating back to the early 1800s, experienced lower rates of growth centuries after in terms of number of firms created, number of employees hired, firms’ output, value added and profit margin. To increase the understanding as the channels through which historical inequality deterred growth, the article exploits the differences across industries’ intensities in skilled labour, physical capital, dependence on external finance and written contracts across 28 sectors in 57 countries during the 1985–2010 period. It is shown that industries relatively more in need of external finance and contracts experienced lower firm creation growth in countries with higher levels of past inequality. Similarly, industries intensive in skilled labour and physical capital experienced lower rate of growth in the number of employees hired, firms’ output and real value in more unequal countries.

Keywords: Inequality; entrepreneurship; panel data

JEL Classification: O11; O47; C5

Suggested Citation

Gutierrez-Romero, Roxana, How Does Inequality Affect Long-Run Growth? (September 17, 2017). Gutiérrez-Romero, Roxana. 2017. How does inequality affect long-run growth? Queen Mary University of London, CGR Working Paper No. 84 , Available at SSRN: https://ssrn.com/abstract=3054777 or http://dx.doi.org/10.2139/ssrn.3054777

Roxana Gutierrez-Romero (Contact Author)

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

HOME PAGE: http://https://roxanagutierrez.wordpress.com/

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