The Impact of Income Inequality on the Economic Growth of Iran: An Empirical Analysis

Abstract

In the 20th century, discrimination in the progress rate of people’s living standard in different regions of the world remains. The ratio of poverty has been dropped significantly in developing countries during the last two decades, but the improvement has been nevertheless unequal (the annual statistics of the World Bank reports). Since 1981 to 2001, a fall from 1.5 billion to 1.1 billion of a number of people living under poverty has been recorded. Yet many developing and less developed economies are caught in circumstances leading to neverending poverty. For instance, Sub-Saharan Africa has witnessed an increase in poverty with numbers growing from 41 percent to 46 percent in the same time span (1981-2001). At the same time as in Eastern Europe and Central Asia, poverty rose about 20 percent in 2001. For that reason, poverty reduction spread at a large scale is the most demanding target for developing countries with low-income. After reviewing the related literature, it has been witnessed that the available empirical evidence so far does not specify an obvious increase in the worldwide economic inequality. There is a slight uncertainty in the belief that in terms of income per capita the gap among the richest and poorest economies has been amplified. However, this does not essentially mean worsening of income distribution between countries or the world's population. Actually, there is no concurrence among economists so far that income distribution is deteriorated in a large number of economies in the recent past. Therefore, no simple outcome can be derived regarding income distribution trends in general from observing different countries situations. There are a small number of empirical studies that tried to build compound indicators for economic inequality at the global level. However, this does not construct definite evidence of increasing inequality. To sum up, the available empirical literature on trends in the global economic inequality is still insufficient and inconclusive. This research study considers the role of income inequality, trade openness and GDP per capita in enhancing economic growth of Iran. The dissertation studies the changes in the global economic inequality and its relationship with Iran’s economic growth.