Income inequality and economic growth in developing and OECD countries

The study reassesses the relationship between income inequality and economic growth for a sample of eighty-one developing and OECD countries for the periods 2010 to 2014 and 2015 to 2019. The average economic growth during these periods is regressed against the 2010 and 2015 values of inequality and controlled variables including initial growth, education, life expectancy, inflation, governance quality, and KOF Globalisation Index using OLS models. On the whole, the findings of this study reveal that an increase in income inequality increases economic growth for the period 2010 to 2014; and an increase in income inequality decreases economic growth for the period 2015 to 2019. Specifically, the findings for the interaction model for the period 2010 to 2014 indicate that in low and middle-income countries, increases in income inequality increase economic growth more than in high-income countries. Similarly, the findings for the interaction model for the period 2015 to 2019 suggest that in high-income countries, decreases in income inequality raise economic growth more than in low and middle-income countries. This study offers insights into how government policymakers and development practitioners develop sound policies geared towards the inclusive growth of the economy. Appropriate recommendations are proposed for future research.