Income Inequality and its Impact on Economic Growth: Evidence from Jordan

Abstract

The relationship between economic growth and income distribution equity resulting from this growth is differing. , while some believe that the inequality in income distribution contributes primarily to the achievement an increase in economic growth, others argue that the inequality in income distribution leads to reduce economic growth. This study aims to identify the relationship between economic growth and equity in the distribution of income in Jordan. The study uses deductive approach through the development of the assumptions and premises relating to both economic growth represented by GDP as dependent variable, and income inequality represented by the Gini coefficient, in addition to another set of variables that affect the economic growth and related to inequality of income distribution such as: final consumption, capital accumulation, total revenues of the state, number of the population in the state, public spending of the state, as independent variables.

The results of the assessment in the model clear that the final consumption which has a coefficient of (1.268) which is considered to be highly significant,  leads to the expansion of economic activity, which in turn leads to higher economic growth, when final consumption increases by one unit, GDP increases by 1.59 at the assessment of the model. The general government consumption which has a coefficient of (0.900) is considered to be highly significant, when government consumption increases by one unit, GDP increases by 0.88 at the assessment of the model. The population variable which had a coefficient of (- 2.210) is considered to be highly significant, when population increases by 1 million, GDP increases by 0.88 at the assessment of the model.

Keywords: inequality in income distribution, Gini coefficient, economic growth, Jordan.