The Impact of Income Inequality on the Economic Growth in Egypt for the Period (1991-2018)

Document Type : Original Article

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Economics and Public Finance Department Faculty Of Commerce Tanta University Tanta Egypt

Abstract

Using time series data for the period (1991-2018), this paper investigates empirically the impact of inequality in income on economic growth in Egypt. It also examines the "classic approach", which implies that inequality in income positively affects economic growth as opposed to the "modern approach", which implies that inequality negatively affects economic growth, using a set of modern Econometrics methods. Such as tests of stability, cointegration, and Granger causality. The importance of this study attributes to the discrepancy between the different approaches about the impact of inequality on growth and its transmission channels as well as to the contradiction between the findings of the empirical studies. In addition to the lack of studies that attempted to examine the relationship in Egypt, The main findings of the study show that there is no co-integration between income inequality and economic growth in Egypt. So we can conclude that there is no trade-off between the two variables in the long run. In the short term, in the limits of a one lag period, Granger's causation showed that inequality in income affects investment which is consistent with expectations of the "classical approach". Based on these results, the study recommends the use of distribution policies to reduce inequality, in addition to enhancing economic growth in the long term, with the aim of reducing poverty in the short term.

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