Coevolution of technical change and income inequality in developed and developing countries

Abstract

ABSTRACT Recent research challenges the long-held belief that economic growth, technical progress, and improved income distribution are inherently linked. Despite rapid technological advancements in recent decades, income inequality has increased. This study seeks empirical evidence on the relationship between technical change and income inequality, focusing on the roles of heterogeneity and appropriability. Using panel data from 75 countries (grouped into ‘developing’ and ‘developed’) from 1983 to 2015, the researchers applied cointegration tests, unit root tests, and a vector error correction model. They examined variables related to technology creation, diffusion, and the Gini index. The findings indicate that technical change, particularly when it is appropriable, often coevolves with increased income inequality. In developed countries, innovation rewards systems contribute to income disparities, while in developing countries, foreign technology transfer reinforces existing inequalities. The study suggests that without redistributive mechanisms, technical progress can lead to trade-offs that hinder overall development.