Does Income Inequality Matter for Structural Transformation?

ABSTRACT

This study revisits the effect of income inequality on economic development from the perspective of structural change. Using an international panel dataset of 90 economies from 1996 to 2015, we empirically assess the impact of income inequality on labour transformation across sectors. We use the ‘wheat – sugar ratio’ as an instrument for endogenous variation. The results suggest that income inequality positively and significantly impacts agricultural labour.

KEYWORDS:

• Income inequality
• structural transformation
• instrumental variable
• Cross-Country evidence

JEL CLASSIFICATION:

• C23
• D31
• O13
• O41

Acknowledgements

We are very grateful for the financial support provided by National Natural Science Foundation of China (72073120), Major Project of the National Social Science Foundation of China (22ZDA029), the MOE project of Key Research Institute of Humanities and Social Sciences at Universities (16 JJD790052), Zhejiang Social Science Leading Talents Plan (ZJWR 0204018), the Fundamental Research Funds for the Central Universities, and Zhejiang University Global Partnership Fund.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ $\overline{c_{na}}<0$.

² For a detailed list of countries and data description statistics, see Appendix B and C..

³ We also provide the first-stage result of GDP per capita, the F-statistic from first stage has shown in the column 1–3..