Abstract
Using a panel of 28 European Union countries for the period 2003–2014, the authors provide empirical evidence for the relationship between innovation, technological specialization, and income inequality. The results of the fixed effect panel regressions show two important findings. Firstly, the positive link was found between innovation, as measured by patenting activities, and income inequality as measured by Gini index and the top 10% income shares of the richest. Secondly, the authors also found the positive correlation between technological specialization, as measured by the Coefficient of Variances (CV) of Revealed Technological Advantage Index, and income inequality. Overall, the study enriches the previous literature suggesting that innovation may increase the gap of income distribution through the mechanism of Skill-Biased Technical Change (SBTC) and the Schumpeterian view of entrepreneurial rent. More importantly, this study is the first which found that not only the level of innovation does matter to the income distribution, but also how the innovation activities are specialized or diversified. Concentrating the activities into few narrow sectors (i.e., increase technological specialization) may also lead to the increase of income inequality.
Highlights
Income inequality is regarded as one of the most crucial social problems
This study has presented the evidence linking innovation and income inequality in European countries in the period from 2003 to 2014
Our results found the positive and significant effect of innovation activity, which is measured by patent application on income inequality represented by Gini index, which confirms the mechanism of skill-biased technical changes
Summary
Income inequality is regarded as one of the most crucial social problems. because it hampers the economic performance (Stiglitz, 2012), but it has a direct impact on social instability (Wilkinson & Pickett, 2010). In most of the developed countries, income inequality is considerably higher than three decades ago and even reaches its highest level for the past half of century (Atkinson, 2013). In recent years, many studies have been conducted to find the explanation: what determines the rise of income inequality.
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