The inequality-growth nexus:a study on institutions, innovation, and the trade-off between inequality and growth

Sun, Yang 2022. The inequality-growth nexus:a study on institutions, innovation, and the trade-off between inequality and growth. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

The present research examines the effects of economic institutions under the broader context of the inequality-growth nexus. We are able to identify from fixed effects panel estimations that although both institutional quality and innovations can offer significant contributions towards economic growth, this progress is made at the expense of economic equality. The interactions of the two variables of interest are found to be negative in signs within the inequality and the growth model, meaning the marginal effects of both innovations and institutions on growth and inequality diminish in their potency as their interacting counterparts increase in value. This indicates that while institutions and innovations are shown to be inequalityinducing, their interaction dampens the effect at higher values. Similarly, while both variables contribute positively towards growth, their interactions also possess negative coefficients, reduces the overall impact on growth in a display of potential institutional inefficiency and diminishing return on innovation. Furthermore, we uncover a transitory institutional effect on growth, where the partial effects of property right protection gradually diminish as the economy develop and are eventually replaced by the broader institutional effects. Additional testing of the model uses GMM and IV estimations, as well as additional robustness tests, reinforce the findings. To develop policy implications from our hypotheses and the empirical findings, we construct a theoretical framework of a voter-driven political model where the balance of the inequality-growth trade-off is set by a redistributive policy tool, determined by a median voter through their utility consideration between inequality and economic growth. We estimate the structural model using the indirect inference technique on long data for the UK from 1870 to 2018. The empirical estimation is not rejected by the Wald test, suggesting that our theoretical model cannot be rejected and is a good fit for empirical data. Key words: inequality, economic growth, institutions, entrepreneurship, innovation, fixed effects, System- GMM, indirect inference, structural modelling, political economics.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	: income inequality, economic growth, development, political economics, institutions, entrepreneurship, innovation, fixed effects, GMM, MMQR, IV, panel analysis, structural model, inequality-growth nexus, trade-off, indirect inference.
Date of First Compliant Deposit:	6 March 2023
Last Modified:	03 Mar 2024 02:30
URI:	https://orca.cardiff.ac.uk/id/eprint/157491

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