Initial Income Levels Research Articles

INCOME DISPARITIES, POVERTY, AND REGIONAL CONVERGENCE IN EUROPE. A SPATIAL APPROACH

Given that the studies conducted so far reveal a wide range of conflicting results concerning the potential transmission channels of income inequality, the following questions arise: Is there a β-convergence process at the European level that is influenced by financial and social inequalities? What is the relationship between economic growth and inequality in Romania and other emerging Eastern European countries, given that there is mixed evidence in the literature? Therefore, in carrying out this research, we aim to assess the specificity of the economic growth-income inequality nexus in 5 ex-communist CEE states over the period 2010-2019 using spatial econometric techniques. On one hand, the main results support the existence of a βconvergence process in Europe that is conditioned by absolute poverty phenomena. This argues for considering poverty as an additional channel that may hamper the economic performance of EU members. On the other hand, our findings reveal a predominantly negative relationship between variables that is determined by variations in the initial income level and the degree of poverty. Additionally, by conducting sub-national analyses, we observe that, in Romania, the growth-poverty-inequality triangle is influenced by severe socioeconomic disparities. From a policy perspective, economic growth can be a useful instrument in reducing regional poverty in Romania if it is supported by consistent increases in the population’s revenues (i.e. the case of North-West and Centre regions), while a higher pace of income growth compared to the regional productivity growth rate tends to foster future rises in poverty.

Insurance Development and Economic Growth

This study aims to investigate the effect of continent and initial GDP per capita level of a country on the relationship between insurance activities and economic growth. This study considers panel data consists of 123 countries from 1967 to 2014. Both static panel model and dynamic panel model are used to evaluate the effect of both continent and initial GDP per capita level of a country to the economic growth. The findings show significant causal relationship between insurance development and economic growth. However, the relationship is varied in different countries due to different initial income levels and locations. The effect of insurance development on economic growth of a country is indirect because it depends on the performance of the investment of insurers. Therefore, policymakers should consider their own country’s special characteristics when formulating a policy. Policymakers should clearly understand the nature of their insurance sector such as interconnectedness between financial sector and insurance sector, whether to promote insurance sector to grow their economy. By understanding the effect of continent and the initial GDP per capita level, policymakers could formulate and implement more effective policies on their country’s insurance sector to ensure the prosperity of the country’s economic growth.

Real convergence in Central and Eastern Europe. A comparative analysis of countries and regions

Abstract One of the fundamental pillars of the European Union aims the convergence of economic performances between countries and regions. This objective has proved to be increasingly difficult to achieve with the expansion of the regional group towards the Central and East of the continent. The aim of this paper is to study real convergence in the New Member States from Central and Eastern Europe, by taking into consideration the evolution of GDP per capita between 2000 and 2018. In this respect, we have conducted a comparative analysis between countries and regions using β- and σ-convergence. By applying cross-sectional regressions, we have identified a strong relationship between the initial level of income of the Central and Eastern European countries and the subsequent growth rates, the average catching-up speed reaching 3.6%. Moreover, β-convergence was accompanied by a reduction of income divergences between Central and Eastern European Members. In contrast, our analysis suggests a weaker process of convergence between regions compared to countries, the convergence rate reaching 1.7% per year. Furthermore, by studying the intra-national patterns, we have illustrated that the capital regions have consolidated their relative position in the majority of the Central and Eastern Member States to the detriment of the other territorial units. Consequently, the paper suggests that convergence across countries was accompanied by an increase of intra-national disparities between regions in Central and Eastern Europe.

Aid for health, economic growth, and the emigration of medical workers

AbstractDebates on the extent to which developing countries suffer from a brain drain often focus on the emigration of locally scarce health personnel. In this paper, we empirically examine how two potential determinants—aid for health and local income levels—affect the emigration rates of doctors and nurses from developing countries. Employing a standard gravity model of international migration, we show that aid for health has a negative effect on the emigration of both nurses and doctors. Our findings suggest that donors influence the emigration decisions of doctors and nurses through improvements in health infrastructure. Higher income per capita is also associated with lower emigration from developing countries for doctors and nurses alike. Given that nurses typically belong to the poorer segments of populations in the countries of origin, we can conclude that even at low initial income levels, on balance, economic growth provides an incentive to stay.

What Drives the Relationship Between Export Upgrading and Growth? The Role of Human Capital, Institutional Quality, and Economic Development

The main goal of this paper is to empirically examine whether human capital, institutional quality, and economic development affect the relationship between export upgrading and economic growth. Different from most previous studies, which include an interaction term between export upgrading and a conditioning variable, this article applies an innovative dynamic panel threshold regression model to allow for non-linearity and an endogenous determination of the threshold location. The model is implemented using a panel data set of 56 developed and developing countries over the period of 1995–2015. Our main findings are twofold. First, the relation between export upgrading and economic growth appears to be non-linear. Second, we find evidence that export upgrading can only enhance economic growth in countries satisfying certain threshold prerequisites, regarding initial income level, human capital, and institutional quality.

Hearing Impairment Increases Economic Inequality.

ObjectivesWe evaluated changes in income levels in a hearing-impaired population.MethodsThe study subjects were selected from the Korean National Health Insurance Service-Health Screening Cohort data from 2002 to 2015 of Koreans ≥40 years old. In total, 5,857 hearing-impaired subjects were matched with 23,428 comparison participants. Differences between the initial income level and income levels at 1, 2, 3, 4, and 5 years post-enrollment were compared between the hearing-impaired and comparison groups. The interaction of time and hearing impairment/comparison was estimated.ResultsBoth the hearing-impaired group and the comparison group showed increased income levels over time. In the hearing-impaired group, the income levels at 4 and 5 years post-enrollment were higher than the initial income level (each P<0.001). In the comparison group, the income levels of all the participants after 1–5 years were higher than the initial income level (each P<0.001). The interaction of time and hearing impairment was statistically significant (P=0.021).ConclusionThe increase in income over time was relatively lower in the hearing-impaired adult population; therefore, the income gap widened between this population and the normal-hearing population.

Aid for Health, Economic Growth, and the Emigration of Medical Workers

Debates on the extent to which developing countries suffer from a brain drain often focus on the emigration of locally scarce health personnel. In this paper, we empirically examine how two potential determinants - aid for health and local income levels - affect the emigration rates of doctors and nurses from developing countries. Employing a standard gravity model of international migration, we show that aid for health has a negative effect on the emigration of both nurses and doctors. The quantitative impact is moderate but non-negligible: doubling the amount of foreign assistance received by developing countries in the health sector lowers the emigration rates of health personnel by around 10%. Our findings suggest that donors influence the emigration decisions of doctors and nurses through improvements in health infrastructure and health care services. Higher income per capita is also associated with lower emigration from developing countries for doctors and nurses alike. Given that nurses typically belong to the poorer segments of populations in the countries of origin, we can conclude that even at low initial income levels, on balance, economic growth provides an incentive to stay rather than enabling would-be migrants to finance migration costs and encouraging them to leave.

Insurance Development and Economic Growth

This study aims to investigate the effect of continent and initial GDP per capita level of a country on the relationship between insurance activities and economic growth. This study considers panel data consists of 123 countries from 1967 to 2014. Both static panel model and dynamic panel model are used to evaluate the effect of both continent and initial GDP per capita level of a country to the economic growth. The findings show significant causal relationship between insurance development and economic growth. However, the relationship is varied in different countries due to different initial income levels and locations. The effect of insurance development on economic growth of a country is indirect because it depends on the performance of the investment of insurers. Therefore, policymakers should consider their own country’s special characteristics when formulating a policy. Policymakers should clearly understand the nature of their insurance sector such as interconnectedness between financial sector and insurance sector, whether to promote insurance sector to grow their economy. By understanding the effect of continent and the initial GDP per capita level, policymakers could formulate and implement more effective policies on their country’s insurance sector to ensure the prosperity of the country’s economic growth.

Housing appreciation patterns in low-income neighborhoods: Exploring gentrification in Chicago

Using data from Chicago, this paper analyzes different housing appreciation patterns from 1983 to 2005 depending on the initial level of income of the neighborhoods where these properties are located. Findings suggest that appreciation patterns of low-income neighborhoods are different than those of high-income neighborhoods. Moreover, appreciation of housing prices in low-income neighborhoods that have experienced gentrification is different than in other low-income neighborhoods not gentrified. To analyze this issue further, we compare the behavior of housing prices in neighborhoods experiencing different stages of gentrification with housing prices in low-income neighborhoods that have not been gentrified. Housing price appreciation is only observed in neighborhoods gentrified that had low levels of income when gentrification was measured. One interpretation of these findings is that housing prices appreciate in neighborhoods experiencing early stages of gentrification, but not in neighborhoods that have been gentrified for longer periods of time. These results could suggest that gentrification may cause displacement pressures in the early stages, but prices are stabilized in neighborhoods being gentrified for some time, reducing the probability of displacement of the low-income population.

Poverty reduction during 1990–2013: Did millennium development goals adoption and state capacity matter?

While poverty reduction remains central in the Post-2015 Agenda, its determinants remain debated in the literature, especially the role of structural conditions related to governance. This paper provides an assessment of two key dimensions: the global adoption of MDGs and state capacity. We do so by studying whether they facilitated convergence in income poverty measures, using cross-section and panel methods, with data on 89 developing economies for the period 1990–2013. We find that poverty headcount and gap measures tended to decrease faster in countries with initially higher income poverty. Such convergence accelerated after 2000, suggesting that MDGs adoption was instrumental to poverty reduction. However, this still leaves unexplained substantial variation in poverty reduction performance across countries. Such variation is explained by state capacity: countries with greater ability to administer their territories in 1990 experienced faster income poverty reduction and were more likely to have achieved the MDG target. This result is insensitive to robust regression methods and to a large set of controls (initial level of income, dependence on natural resources, education and health inputs, dependence on foreign aid, ethnic fractionalization, regional effects and a set of governance variables). As good governance and effective institutions are included in the Sustainable Development Goals, this result provides empirical justification for this move, suggesting that more effective states could be crucial to sustain the development progress achieved so far.

Lessons for Effective Fiscal Decentralization in Sub-Saharan Africa

Fiscal decentralization is becoming a pressing issue in a number of countries in sub-Saharan Africa, reflecting demands for a greater local voice in spending decisions and efforts to strengthen social cohesion. Against this backdrop, this paper seeks to distill the lessons for an effective fiscal decentralization reform, focusing on the macroeconomic aspects. The main findings for sub-Saharan African countries that have decentralized, based on an empirical analysis and four case studies (Kenya, Nigeria, South Africa, Uganda), are as follows: • Determinants and effectiveness: Empirical results suggest that (1) the major driving forces behind fiscal decentralization in sub-Saharan Africa include efforts to defuse ethnic conflicts, the initial level of income, and the urban-ization rate, whereas strength of democracy is not an important determi-nant for decentralization; and (2) decentralization in sub-Saharan Africa is associated with higher growth in the presence of stronger institutions. • Spending assignments: The allocation of spending across levels of gov-ernment in the four case studies is broadly consistent with best practice. However, in Uganda, unlike in the other three case studies, subnational governments have little flexibility to make spending decisions as a result of a deconcentrated rather than a devolved system of government. • Own revenue: The assignment of taxing powers is broadly in line with best practice in the four case studies, with the bulk of subnational revenue coming from property taxes and from fees for local services. However, own revenues are a very small fraction of subnational spending, reflecting weak cadaster systems and a high level of informality in the economy.

Poverty Reduction During 1990-2013: Did Millennium Development Goals Adoption and State Capacity Matter?

While poverty reduction remains central in the Post-2015 Agenda, its determinants remain debated in the literature, especially the role of structural conditions related to governance. This paper provides an assessment of two key dimensions: the global adoption of MDGs and state capacity. We do so by studying whether they facilitated convergence in income poverty measures, using cross-section and panel methods, with data on 89 developing economies for the period 1990-2013. We find that poverty headcount and gap measures tended to decrease faster in countries with initially higher income poverty. Such convergence accelerated after 2000, suggesting that MDGs adoption was instrumental to poverty reduction. However, this still leaves unexplained substantial variation in poverty reduction performance across countries. Such variation is explained by state capacity: countries with greater ability to administer their territories in 1990 experienced faster income poverty reduction and were more likely to have achieved the MDG target. This result is insensitive to robust regression methods and to a large set of controls (initial level of income, dependence on natural resources, education and health inputs, dependence on foreign aid, ethnic fractionalisation, regional effects and a set of governance variables). As good governance and effective institutions are included in the Sustainable Development Goals, this result provides empirical justification for this move, suggesting that more effective states could be crucial to sustain the development progress achieved so far.

Trade and Growth: A Simple Model with Not-so-Simple Implications

We present a simple model of international trade (IT) and growth. The model yields a unique equilibrium path in which the relationship between exogenous and endogenous variables does not resemble the equations estimated by the empirical literature: Ours are not linear, despite the fact that technology and demand are linear, they do not include variables used in this literature like shares of IT and investment and include variables that have never been used in this literature such as comparative and absolute advantage, specialization patterns, saving habits and technology of partner countries. Finally, the impact of the initial level of income and the number of years that the economy has been open is far more complicated that had been assumed by the literature.

Trends in Personal Income Tax Progression in OECD Countries in the Context of Income Redistribution

In recent years there has been an evident, widespread increase in income disparities in OECD countries. Progressive Personal Income Tax, which enables adjustment of the tax burden to individual’s capacity to pay, is one of the fundamental instruments used in redistribution policy. The aim of the paper is comparative analysis of the level of Personal Income Tax (PIT) progression in OECD countries and identification of trends in progression in the context of income redistribution. The article discusses the progressivity level of PIT in OECD countries measured by the differences in the burden at different levels of income. The cross-country and historical trends in the statutory PIT rates, the number of tax brackets and the provisions which exempt an initial level of income from tax burden are analysed and graphically illustrated.

Trade and growth: A simple model with NOT-SO-Simple implications

We present a simple model of international trade (IT) and growth. The model yields a unique equilibrium path in which the relationship between exogenous and endogenous variables does not resemble the equations estimated by the empirical literature: Ours are not linear, despite the fact that technology and demand are linear, they do not include variables used in this literature like shares of IT and investment and include variables that have never been used in this literature such as comparative and absolute advantage, specialization patterns, saving habits and technology of partner countries. Finally, the impact of the initial level of income and the number of years that the economy has been open is far more complicated than had been assumed by the literature.

Income Increase and Moving to a Better Neighbourhood: An Enquiry into Ethnic Differences in Finland

Concentration to disadvantaged neighbourhoods may hinder immigrants' opportunities for social integration, so equal chances of translating available economic resources into mobility to less disadvantaged neighbourhoods are important. This paper adds to existing research on exits from poor neighbourhoods by focusing on the effects of income increase on residential mobility. We analyse intra-urban residential mobility from low-income neighbourhoods into non-low-income neighbourhoods among immigrants and native-born residents in three urban regions in Finland. We use longitudinal register data for the 2004–2014 period for the full Finnish population, allowing a dynamic analysis of changes in income and neighbourhood of residence. Based on multinomial logit modelling of migration outcomes, we found that an increase in income is associated with moving both to low-income and non-low-income areas even when controlling for initial income level. Upward income mobility was connected to exit from low-income areas in a quite similar way among immigrants and native-born Finns. The findings suggest that policies e.g. improving the labour market opportunities of immigrants are effective in reduction of residential segregation. However, we were not able to completely explain the differences between native-born Finns and immigrants in moving patterns. The differences between the cities were opposite for immigrants and native-born Finns, corresponding to differences in immigration history and levels of ethnic segregation. Therefore, the local context matters for spatial integration outcomes.

Trade openness, economic growth and competitiveness. The case of the Central and Eastern European Countries

This paper intends to analyze the effects of openness to trade on economic growth and competitiveness of the Central and Eastern European (CEE) countries. Although these countries are at different stages of development and integration with the European Union, there are not highlighted differences on trade openness. Trade policies of them have been oriented towards regional trade cooperation and also integrating into the global economy. The empirical analysis of this study consists on 1 5 - year panel data of 11 CEE countries over the period 2000 to 2014. The system GMM is used as the most appropriate estimation method that addresses various econometric challenges, including endogeneity problems. The growth rate of the sample countries is modelled as dependent on trade openness and a set of control variables such as initial level of income per capita, human capital, gross fix capital formation, FDI, labour force and some interaction variables with trade openness. The estimation results indicate that the positive effects of trade openness on economic growth are conditioned by the initial income per capita and other explanatory variables. Otherwise, there is not robust evidence between these two variables. Moreover, the trade openness is more beneficial to countries with higher level of initial income per capita, as well as trade openness favours countries with higher level of FDI and with a higher gross fixed capital formation. This paper intends to analyze the effects of openness to trade on economic growth and competitiviness of the Central and Eastern European (CEE) countries. Although these countries are at different stages of development and integration with European Union, there are not highlighted differences on trade openness. Trade policies of them have been oriented towards regional trade cooperation and also integrating into the global economy. The empirical analysis of this study consists on 1 5 - year panel data of 11 CEE countries over the period 2000 to 2014. The system GMM is used as the most appropriate estimation method that addresses various econometric challenges, including endogeneity problems. The growth rate of the sample countries is modelled as dependent on trade openness and a set of control variables such as: initial level of income per capita, human capital, gross fix capital formation, FDI, labour force and a number of interaction variables with trade openness. The estimation results indicate that the positive effects of trade openness on economic growth are conditioned by the initial income per capita and other explanatory variables, otherwise there is not robust evidence between these two variables. Moreover, the trade openness is more beneficial to countries with higher level of initial income per capita, as well as trade openness favours countries with higher level of FDI and with higher gross fixed capital formation. DOI: http://dx.doi.org/10.5755/j01.ee.27.2.14013

Wealth Inequality and Financial Development: Revisiting the Symmetry Breaking Mechanism

In an overlapping generations model with financial frictions and the fixed investment size requirement, Matsuyama (2004, Econometrica) shows that, in the absence of integrated financial markets, the world economy has a unique steady state, which is symmetric and stable in the sense that inherently identical countries converge to the same income level in the long run, regardless of their initial income level; financial globalization may break this symmetric steady state and lead to cross-country income polarization. He calls this phenomenon symmetry breaking and points out that financial underdevelopment is one of the necessary conditions. We revisit this result by introducing wealth inequality and the minimum investment requirement into his framework. Increasing wealth inequality strictly reduces the possibility of symmetry breaking; if wealth inequality exceeds a threshold value, symmetry breaking does not arise at all, regardless of the level of financial development. Thus, wealth inequality is an equally important factor as financial development in determining the possibility of symmetry breaking. We also address some practical issues in this framework, e.g., the conditions of financial integration, the domestic financial crisis and capital controls, and the world interest rate shocks and income volatility.

Empirical Analysis of the Effects of Trade Openness on Economic Growth: An Evidence for South East European Countries

This paper intends to analyze the effects of openness to trade on economic growth of South East European (SEE) countries. Although these countries are at different stages of development and integration with European Union, there are not highlighted differences on trade openness. Trade policies of them have been oriented towards regional trade cooperation and also integrating into the global economy. The empirical analysis of this study consists on 16-year panel data of 10 SEE countries over the period 1996 to 2012. The system GMM is used as the most appropriate estimation method that addresses various econometric challenges, including endogeneity problems. The growth rate of the sample countries is modelled as dependent on trade openness and a set of control variables such as: initial level of income per capita, human capital, gross fix capital formation, FDI, labour force and a number of interaction variables with trade openness. The estimation results indicate that the positive effects of trade openness on economic growth are conditioned by the initial income per capita and other explanatory variables, otherwise there is not robust evidence between these two variables. Moreover, the trade openness is more beneficial to countries with higher level of initial income per capita, as well as trade openness favours countries with higher level of FDI and with higher gross fixed capital formation.

Specification test for panel data models with interactive fixed effects

In this paper, we propose a consistent nonparametric test for linearity in a large dimensional panel data model with interactive fixed effects. Both lagged dependent variables and conditional heteroskedasticity of unknown form are allowed in the model. We estimate the model under the null hypothesis of linearity to obtain the restricted residuals which are then used to construct the test statistic. We show that after being appropriately centered and standardized, the test statistic is asymptotically normally distributed under both the null hypothesis and a sequence of Pitman local alternatives by using the concept of conditional strong mixing that was recently introduced by Prakasa Rao (2009). To improve the finite sample performance, we propose a bootstrap procedure to obtain the bootstrap p-value. A small set of Monte Carlo simulations illustrates that our test performs well in finite samples. An application to an economic growth panel dataset indicates significant nonlinear relationships between economic growth, initial income level and capital accumulation.