Muhammad, Shahbaz and Faridul, Islam and Muhammad Sabihuddin, Butt (2011): Devaluation and income inequality: Evidence from Pakistan.
Download (112kB) | Preview
The paper examines the impact of nominal devaluation on income distribution in Pakistan. In the empirical model we include economic growth, measured per capita; trade-openness; foreign direct investment (FDI); unemployment and inflation rates which appear well justified in the particular context of the economy of Pakistan. The Auto Regressive Distributed Lag (ARDL) bounds testing approach to cointegration has been employed for the long run relation; and the Vector Error Correction Model (VECM) for the short run dynamics. We also test the Kuznets inverted-U relation between income inequality and economic growth. We find long run relationship among the series; and that nominal devaluation worsens income inequality. Though economic growth appears to deteriorate income distribution, the non-linear link between the variables depicts Kuznets’ (1955) type inverted-U relationship. This is reassuring for Pakistan in the long run. We also find FDI and trade-openness worsens income distribution. Inflation lowers income inequality but unemployment aggravates it in Pakistan.
|Item Type:||MPRA Paper|
|Original Title:||Devaluation and income inequality: Evidence from Pakistan|
|English Title:||Devaluation and Income Inequality: Evidence from Pakistan|
|Keywords:||Devaluation, Income Inequality, EKC, ARDL|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Muhammad Shahbaz|
|Date Deposited:||21. Dec 2011 15:25|
|Last Modified:||30. Apr 2015 23:11|
Agènor, P.R. (2003), “Does globalization hurt the poor?” mimeo, World Bank, Washington.
Ahluwalia, M. (1974), “Income inequality: some dimensions of problem, in Redistribution with Growth”, New York (eds) H. Cheney et al., Oxford University Press.
Alexander, S.S. (1952), “Effects of devaluation on a trade balance”, IMF Staff Papers, p. 263-78.
Aparicio, C and Araujo, R. (2011), “El impacto de la inflación en la distribución del ingreso: la importancia del nivel de desigualdad del ingreso inicial”, Working Paper series, Central Bank of Peru
Bahmani-Oskooee, M and Gelan, A. (2008), “Kuznets inverted-U hypothesis revisited: a time-series approach using US data”, Applied Economics Letters, 15(9), p. 677-681.
Bahmani-Oskooee, M and Hajilee, M. (2010), “On the relation between currency depreciation and wages,” Applied Economics Letters, 17(6), p. 525-530.
Bahmani-Oskooee, M. (1997), “Effects of devaluation on income distribution”, Applied Economics Letters, 4(3), p. 321-323.
Barro, R.J. (2000), “Inequality and Growth in a Panel of Countries”, Journal of Economic Growth, 5(1), p.1-32.
Benabou, R. (1996), “Education, Income Distribution and Growth: The Local Connection,” NBER Working Papers 4798, National Bureau of Economic Research, Inc.
Bensidoun. I, Jean. S and Sztulman. A, (2005), “International Trade and Income Distribution: Reconsidering the Evidence” Working Papers 2005-17, CEPII research center.
Berry, R. (1974), “Changing income distribution under development, Canavos, G.C. (1984) Applied probability and Statistical Methods, Little Brown, Boston.
Bhagwati , J. (2004), Anti-globalization: why? Journal of Policy Modeling, 26 (4), p. 439–463
Bhagwati, J and Srinivasan, T.N. (2002), “Trade and poverty in the poor countries,” The American Economic Review, 92 (2), p.180-183.
Bourguignon, F. (1994), “Growth, Distribution and Human Resources”, in G. Ranis, eds., En Twomey Route to Modern Growth, Essays in Honor of Carlos Diaz-Alejandro. Washington, DC: Johns Hopkins University Press, pp: 43-69.
David, M and Scott, A. (2005), Macroeconomics: Understanding the Wealth of Nations, John Wiley & Sons.
Diaz-Alejandro, C. (1965), “Exchange rate devaluation in a semi-industarialized economy: the experience of Argentina 1995-1961” MIT Press, Cambridge MA.
Dickey, D and Fuller, W. (1979), “Distribution of the estimators for autoregressive time series with a unit root,” Journal of the American Statistical Association, 74 (336), p. 427-431.
Doyle, C. (1996), “The distributional consequences during the early stages of Russia’s transition”, Review of Income and Wealth, 42(4), p. 493-505.
Edwards, S. (1989), “Exchange rates, devaluation, and adjustment: exchange rate policy in developing countries” MIT Press, Cambridge MA.
Fields, G.S. (1980), “Poverty, Inequality, and Development: Cambridge University Press, Cambridge.
Forbes, K. (2000), “A reassessment of the relationship between inequality and growth,” The American Economic Review, 90(4), p. 363-382.
Frank, M. (2002), “Income inequality and economic growth in the US: a panel cointegration approach”, working paper, Department of Economics and International Business, Sam Houston State University, Huntsville, TX.
Furquim, L. and Garcia, F. (2002), “Inequality and economic growth in Latin American countries”, Textos para discussA˜ lo No. 104, Escola de Economia de Sa˜o Paulo, Getulio Vargas Foundation, Sa˜o Paulo.
Haughton, J and Kinh, H. (2003), “Does devaluation worsen income distribution: evidence from Vietnam” unpublished paper.
Heyse, A. (2006), “Income distribution and economic growth in developing countries: an empirical analysis”, unpublished Master thesis.
Jamal, H. (2006), “Does Inequality Matter for Poverty Reduction” The Pakistan Development Review, 45 (3), p. 439-459.
Jha, S. K. (1996), “The Kuznets curve: a reassessment”, World Development, 24(4), p. 773-80.
Krugman, P and Taylor, L. (1978), “Contractionary effects of devaluation”, Journal of Development Economics, 8(3), p. 445-56.
Kuznets, S. (1955), “Economic growth and income inequality”, The American Economic Review, 45(1), p. 1-28.
Lindert, P. H. (1986), “International Economics”, 8th edn, Irwin, IL.
Malinen, T. (2008), “Estimating the long run relationship between income inequality end economic development”, Discussion Paper No. 634:2008, University of Helsinki, Helsinki.
Milanovic, B. (1995), “Poverty, Inequality and Social Policy in Transition Economies”, Transition Economics Division, World Bank Research Paper-9.
Mohtadi, H. (1988), “Growth-distribution trade-offs: the role of capacity utilization”, Cambridge Journal of Economics, 12(4), p. 419-33.
Nahum, R.A. (2005), “Income inequality and growth: a panel study of Swedish counties 1960-2000”, working paper, Department of Economics, Uppsala University, Uppsala.
Narayan, P. K. (2005), “The saving and investment nexus for China: evidence from co-integration tests”, Applied Economics, 37(17), p. 1979-1990.
Osmani, S.R. (2005), “The Impact of Globalization on Poverty in Bangladesh,” Working Paper, 65, Policy Integration Department National Policy Group International Labour Office, Geneva.
Ouattara, B. (2004), “Foreign aid and fiscal policy in Senegal”. Mimeo University of Manchester.
Papanek, G.F., and Kyn, O. (1986), “The effect on income distribution of development, the growth rate and economic strategy”, Journal of Development Economics, 23(1), p. 55-65.
Pesaran, M. H., Shin, Y. and Smith, R. J. (2001), “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Econometrics, 16(3), p. 289-326.
Ram, R. (1997), “level of economic development and income inequality: evidence from the postwar developed world,” Southern Economic Journal, 64(2), p. 576-583.
Sarel, M. (1999), “How macroeconomic factors affect income distribution: the cross-country evidence” IMF WP/97/152.
Shahbaz, M and Islam, F. (2011), “Financial development and income inequality in Pakistan: an application of ARDL approach, Journal of economic development, 36 (1), 35-58.
Shahbaz, M, Islam, F and Aamir, N. (2012), “Is devaluation contractionary: empirical evidence for Pakistan,” Economic Change and Restructuring, DOI 10.1007/s10644-011-9119-7.
Shahbaz, M. (2008), “Does Globalization Benefit the Poor? Evidence from Pakistan,” Journal of Economic and Social Policy, 5(1), 9-27.
Shahbaz, M. (2009), “On nominal and real devaluations relation: an econometric evidence for Pakistan,” Journal of applied econometrics and quantitative studies, 9(1), p. 86-108.
Shahbaz, M. (2010), “Income Inequality-Economic growth and Non-Linearity: A Case of Pakistan,” International Journal of Social Economics, 37(8), p. 613-736.
Shahbaz, M., A.N.M. Wahid, and Kalim, R. (2010), “Is Inflation Regressive or Progressive? Long Run and Short Run Evidence from Pakistan,” International Journal of Management Studies, 17 (1), p. 43-67.
Shahbaz, M., and Aamir, N. (2008), “Foreign Direct Investment and Income Distribution: A Case Study for Pakistan,” International Research Journal of Finance and Economics, 7, p. 7-18.
Shahbaz, M., Q.M. Ahmad, M.H. Ahmad, and Butt, M. S. (2007a), “An Empirical Investigation of the Relationship between Trade Liberalization and Poverty Reduction: A Case for Pakistan,” The Lahore Journal of Economics, 12, p. 99-118.
Shahbaz, M., S.M. Butt, and Aamir, N. (2007c), “Rural-Urban Income Inequality under Financial Development and Trade Openness in Pakistan: The Econometeric Evidence,” The Pakistan Development Review, 46, p. 657-672.
Shahbaz. M, N. Aamir and Butt, M. S. (2007b), “Trade and inequality nexus in Pakistan: under investigation of alternative techniques” European Journal of Economics, Finance and Administrative Sciences”, 9, p. 57-72.
Shrestha, M and Chowdhury, A. (2005), “ARDL Modeling Approach to Testing the Financial Liberalization Hypothesis,” University of Wollongong Economics Working Paper Series, http://www.uow.edu.au/commerce/econ/wpapers.html.
Stephen, K. (2003), “inequality and economic growth: The empirical relationship reconsidered in the light of comparable data” CREDIT Research Paper No. 01/03.
Stiglitz, J. E. (2004), “Globalization and growth in emerging markets,” Journal of Policy Modeling, 26(4), p. 465-484.
Towmey, M. (1983), “Devaluation and income distribution in Latin America” Southern Economic Journal, 49(3), p. 804-821.
Wan, G. (2002), “Income inequality and growth in transition economies”, WIDER Discussion Paper No. 2002/104.