– Economic Growth and Income Inequality –
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ABSTRACT
The research aims to find the relationship between income inequality and economic growth in the Brazilian economy. Economic growth and income inequality are defined in the light of academic literature and their varied effect on wellbeing are explored.
The research methodology selected is deductive. The data have been collected through secondary sources and a multiple regression model is used to study the relationship between the economic performance and income inequality in Brazil.
Contrary to many previous studies, the findings of the research suggest a significant positive relationship between these two variables. Newer and reliable data were used for these estimations.
Other findings of the study are that human and physical capital have significant positive effect on growth. It was also concluded that, unlike many recent country and cross-country studies, Brazil’s income inequality does not hinder its growth.
TABLE OF CONTENT
CHAPTER ONE …………………………………………………………………………………………………………… 4
1.0 INTRODUCTION……………………………………………………………………………………………………….. 4
1.1 MEASURES OF INEQUALITY ………………………………………………………………………………………. 7
1.2 BRAZIL’S INEQUALITY FACTS AND FIGURES ……………………………………………………………….. 7
1.3 WHY IS BRAZIL’S INEQUALITY LEVEL SO HIGH? …………………………………………………………. 9
1.4 ECONOMIC GROWTH, INCOME INEQUALITY, AND POVERTY…………………………………………… 9
CHAPTER TWO ………………………………………………………………………………………………………… 14
3.0 LITERATURE REVIEW …………………………………………………………………………………………….. 14
3.1 EARLY STUDIES…………………………………………………………………………………………………….. 14
3.2 NEWER STUDIES ……………………………………………………………………………………………………. 17
CHAPTER THREE…………………………………………………………………………………………………….. 18
3.0 THEORETICAL FRAMEWORK……………………………………………………………………………………. 18
3.1 FERTILITY RATE……………………………………………………………………………………………………. 19
3.2 GENERAL HEALTH IN A SOCIETY……………………………………………………………………………… 20
3.4 CREDIT MARKET IMPERFECTIONS ……………………………………………………………………………. 20
3.5 REDISTRIBUTION PROGRAMS…………………………………………………………………………………… 21
3.6 SOCIOPOLITICAL UNREST ……………………………………………………………………………………….. 22
3.7 SAVINGS RATE ……………………………………………………………………………………………………… 22
3.8 OVERALL EFFECT………………………………………………………………………………………………….. 23
CHAPTER FOUR……………………………………………………………………………………………………….. 24
4.0 METHODS AND MATERIALS…………………………………………………………………………………….. 24
4.1 RESEARCH DESIGN AND POPULATION OF STUDY………………………………………………………… 24
4.2 DATASET ……………………………………………………………………………………………………………… 25
4.3 THE MODEL………………………………………………………………………………………………………….. 27
4.4 DATA PROCESSING ………………………………………………………………………………………………… 28
CHAPTER FIVE ………………………………………………………………………………………………………… 29
5.0 RESULTS AND DISCUSSION ……………………………………………………………………………………… 29
5.1 RESULTS………………………………………………………………………………………………………………. 29
5.2 DISCUSSION………………………………………………………………………………………………………….. 30
5.3 TESTING FOR HETEROSKEDASTICITY………………………………………………………………………… 32
5.4 TESTING FOR SERIAL CORRELATION ………………………………………………………………………… 34
CHAPTER SIX …………………………………………………………………………………………………………… 35
6.0 CONCLUSION ………………………………………………………………………………………………………… 35
REFERENCES…………………………………………………………………………………………….36
INTRODUCTION
Brazil is a developing Latin American country. Its political and economic growth over the past three decades, in which annual GDP growth rate averaged 3.2% has spurred research worldwide.
Today, Brazil ranks as the 7th largest economy in the world (by PPP GDP) with a per capita GDP of $15, 390 (World Bank, 2017). Despite the recent economic turndown, the growth rate is expected to increase in the near future and its economic power is likely going to overtake even more countries.
Politically, the economy has experienced tremendous success and international recognition. It has hosted some of the world’s biggest events. Among these are the FIFA World Cup in 2014 and most recently, the 2016 Summer Olympic Games.
Figure 1 shows Brazil’s GDP per capita trend from 1980 to 2016.” Brazil has one of the highest income inequalities in the world despite its impressive growth rates. This is evident in its Gini coefficient.
The United Nations Department of Economic and Social 4,000.00 6,000.00 8,000.00 10,000.00 12,000.00 14,000.00 16,000.00 18,000.00 GDP Per Capita Year GDP Per Capita (PPP) 5 Affairs (2015) defines Economic or income inequality as “how economic variables are distributed among individuals in a group, among groups in a population, or among countries”.
The Gini coefficient measures the extent to which household or individual income in a country deviates from perfectly equal distribution (World Bank, 2017). This coefficient lies between 0 and 1; with 1 meaning perfectly unequal income distribution and 0 meaning perfectly equal distribution of income. The Gini index is the Gini coefficient expressed as a percentage. Brazil has a Gini index of 51.48% as of 2014.
REFERENCES
World Income Inequality Database. (2017). United Nations University UNU-WIDER. Retrieved
from https://www.wider.unu.edu/database/world-income-inequality-database-wiid34A, R. (2015, June 15). How Inequality Affects Growth. The Economist. Retrieved from
http://www.economist.com/blogs/economist-explains/2015/06/economist-explains-11Akpoilih, R. A., & Farayibi, A. O. (2012, May 7). Economic Growth and Inequality in Nigeria:
Magnitudes and Challenges.Araujo, J. A., & Cabral, J. (2014). The Relationship between Income Inequality and Economic
Growth in Brazil. Universidad Nacional Autónoma de México (UNAM). Retrieved from
http://www.probdes.iiec.unam.mx/en/revistas/v45n180/body/v45n180a6_1.phpAwan, A. G. (2012). Diverging Trends of Human Capital in BRIC Countries. International
Journal of Asian Social Science 2(12):2195-2219, 2195-2219.Bakare, A. S. (2012). Measuring the Income Inequality in Nigeria: the Lorenz Curve and Gini
Co-efficient Approach. American Journal of Economics, 47-52.Banerjee, A. V., & Duflo, E. (2003). Inequality and growth: What can the data say? Journal of
Economic Growth, 267-299.Barro, R. (1991). Economic Growth in a Cross-section of Countries. Quarterly Journal of
Economics, 407−43.Barro, R. (2000). Inequality and Growth in a Panel of Countries. Journal of Economic Growth,
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