Abstract
The main purpose of this work is to explore the relationship between income inequality and economic growth in Bangladesh. The study is based on time series data starting from 1973 to 2016 of Bangladesh. In this paper, we used the Augmented Dickey-Fuller (ADF) test for checking stationary of series. This study gives a hint that all the afore-mentioned series are stationary at first difference. This paper also incorporated the Johansen test for co-integration and Vector error correction model (VECM) to test the long run relationship between income inequality and economic growth rate. The results of the study indicate that economic growth and income inequality are co-integrated. This approach suggests that an inverse relationship exists between income inequality and economic growth rate. In other words, the higher economic growth rate results in lower income inequality and lower economic growth rate leads to higher income inequality. We find that income inequality plays a negative and significant role in economic growth. Keywords : Income inequality, Economic growth, ADF, Cointegration test, VECM, Bangladesh. DOI : 10.7176/JESD/10-16-09 Publication date : August 31 st 2019
Highlights
High economic growth is an indicator of development in countries
When null hypothesis r=0, our max statistics is greater than critical value we reject the null hypothesis (There is no cointegrating relations, r=0) and accept the alternative hypothesis
From this table showed that all of the coefficient value is highly significant because Statistics value of all variable is greater than the critical value
Summary
High economic growth is an indicator of development in countries. In the absence of economic growth, the development process is considered failed to improve the welfare of the country. The implementation of economic development activities is expected to be oriented to increase economic growth. Economic growth serves as an essential indicator of welfare. High economic growth may not necessarily improve the distribution of income in the community. The relation between income distribution and economic growth has been a popular topic of recent economic research
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