WHICH HYPOTHESIS IS VALID IN OECD COUNTRIES, KUZNETS U CURVE OR GREAT U-TURN? SYSTEM GMM ESTIMATION FOR DYNAMIC PANEL DATA

Authors : Nükhet DOĞAN, Reyhan CAFRI

Pages : 411-426

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Publication Date : 2016-10-30

Article Type : Research Paper

Abstract :The results of research in recent years have claimed that the relationship between economic growth and income inequality no longer supports Kuznets' inverse-U hypothesis. The expectation of “Inverse-U” in explaining the relationship between economic growth and income inequality replaced with “Great U-Turn” instead. In this context, this research aims to explain the relationship between income inequality and economic growth per capita in OECD countries for the period of 2000-2012. The analysis made using Dynamic Panel Data Method to explain the relationship between income inequality and economic growth per capita which shows evidence in support of Great U-Turn. The result of variables which alleged to cause income inequality to turn positive again, such as rapid technological change (positive), the labor force in the agriculture sector (positive), interest rate (negative) and foreign direct investment (negative) were all statistically significant. The results also indicated that labor force with a higher level of education has the effect of reducing income inequality while the effect of the unemployment rate on inequality was negative.
Keywords : The Kuznets curve, The great U turn, Income inequality, System GMM