Concentration of income and land holdings: Prediction by latent variables model and partial least squares

Abstract

Economic growth is one of the causes of income disparity among countries. However, some evidence suggests that the maldistribution of land holdings is the underlying factor of the inequality of income. Kuznets speculates that, over the stages of economic growth, it is the initial unequal income distribution that induces a high concentration of asset holdings, and this in turn contributes to a high concentration of income. To resolve this ambiguity, the paper introduces latent variables in a path model designed for causal prediction. Estimation is done by World's partial least squares method. Prediction is based on the Q 2 statistic. Findings show that, for both DCs and LDCs as well as for a sample of all countries, the causal predictive direction between concentrations of income and land holdings is from the former to the latter.