Economic freedom, economic development and income inequality in Asia: an analysis from the Kuznets curve perspective

Abstract

The impact of economic freedom on income inequality has been inconclusive in the literature. Previous studies also show the importance of economic freedom in boosting economic development, whereas the Kuznets curve theory indicates the inverted U-shaped relationship between economic development and income inequality. Thus, economic development may play an important role in moderating the nexus of economic freedom and income inequality. This study throws light on the effects of economic freedom, economic development, and their interaction on income inequality in 35 Asian economies during 2000–2018 from the Kuznets curve’s perspective. Our empirical results demonstrate that initially economic freedom increases income inequality, then until a threshold of economic development, economic freedom reduces income inequality. In addition, the inverted U-shaped Kuznets curve of economic development and income inequality is confirmed in the context of the Asian continent. The robustness of our results is ensured with different proxies of economic freedom and various estimators.