The Fragility of the Evidence on Inequality, Trade Liberalisation, Growth and Poverty

There has been a recent resurgence of interest in the relationships between income inequality and growth, trade policy and growth, and growth and poverty. We contribute to this literature by exploring the relationships between inequality, trade liberalisation, growth and poverty in a sample of exclusively developing countries. We find moderately robust evidence for a negative effect of inequality on growth in the long run but no significant effect in the short run. However, the strength of the long-run effect is sensitive to the sample and specification, suggesting that inequality is only one measure of policy distortions that retard growth while the relationship between inequality and growth is quite different in some countries. Trade liberalisation appears to have a consistent and significant positive association with growth. There is no evidence that inequality, growth or trade liberalisation are significant determinants of cross-country variations in poverty. There is consistent evidence that, controlling for most other variables, sub-Saharan African countries experience below average growth performance, have higher inequality and higher poverty. While the empirical relationships are fragile, the analysis confirms that the fundamental determinants of inequality and poverty are country-specific factors not easily captured in cross-country regressions. This cautions against making any broad generalisations about how inequality, growth and poverty are related. Outline