Income inequality and economic growth in BRICS: insights from non-parametric techniques

The income inequality-economic growth linkage is a topical issue in economics and policy discussions. Both theoretical and empirical results on the impact of income inequality on economic growth have been controversial. One of the criticisms of the existing studies relates to using cross-sectional data and linear estimation techniques for empirical analysis. Capitalising on the limitations in the existing literature, this article employs the novel Quantile-on-Quantile Regression (QQR) approach to examine the relationship between income inequality and economic growth in BRICS. Applying the novel QQR technique helps to model how income inequality distributions affect the distributions of economic growth. The quantile cointegration tests reveal cointegration between income inequality and economic growth. The QQR results indicate that income inequality has a stronger negative effect on the lower and middle tails of economic growth in Brazil while having a stronger positive impact on economic growth in Russia, China and South Africa. For India, income inequality has a stronger negative effect on the lower tail of economic growth and a stronger positive impact on the middle and higher tails of economic growth. These results are consistent with quantile regression results. Further analysis from the Granger causality-in-quantiles shows that at various quantiles, a bidirectional causal relationship between income inequality and economic growth exists in China, while a unidirectional causality runs from income inequality to economic growth in Brazil and India. No causal relationship was found between income inequality and economic growth in Russia and South Africa. The policy implications are discussed.