Income Inequality and Economic Growth: Empirical Evidence from Bangladesh

Abstract

The main purpose of this work is to explore the relationship between income inequality and economic growth in Bangladesh. The study is based on time series data starting from 1973 to 2016 of Bangladesh. In this paper, we used the Augmented Dickey-Fuller (ADF) test for checking stationary of series. This study gives a hint that all the afore-mentioned series are stationary at first difference. This paper also incorporated the Johansen test for co-integration and Vector error correction model (VECM) to test the long run relationship between income inequality and economic growth rate. The results of the study indicate that economic growth and income inequality are co-integrated. This approach suggests that an inverse relationship exists between income inequality and economic growth rate. In other words, the higher economic growth rate results in lower income inequality and lower economic growth rate leads to higher income inequality. We find that income inequality plays a negative and significant role in economic growth.

Keywords: Income inequality, Economic growth, ADF, Cointegration test, VECM, Bangladesh.

DOI: 10.7176/JESD/10-16-09

Publication date: August 31^st 2019