A Panel Analysis of Income Inequality and Energy Use

Robert, Sonora (2018): A Panel Analysis of Income Inequality and Energy Use.

Abstract

This paper investigates the relationship between energy consumption and income inequality in an unbalanced panel of 147 countries over the period 1990 - 2014. Using a variety of panel and dynamic panel methods and controlling for other determinants of inequality, such as education, health, investment, etc., I find a large and strong negative relationship between access to energy and income inequality. Moreover, I demonstrate that greater access reduces the share of income enjoyed by the top 20% and increases the share for the bottom 20%. Results are less robust when the sample is divided into regions and economic 'blocs', but the overall results are unchanged.

• Item Type: MPRA Paper
• Language: English
• Keywords: Income Inequality, Growth, Energy, Dynamic Panel
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O50 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Acemmoglu, D., S. Johnson, and J. A. Robinson (2005): "Institutions as a fundamental cause of long run economic growth," in P. Aghion and S. N. Durlauf, eds., Handbook of Economic Growth, Volume 1A, the Netherlands: Elsevier, 385-472.

Alesina, A. and R. Perotti (1996): "Income distribution, political instability, and investment," European Economic Review, 40, 1203-1228.

Anand, S. and P. Segal (2008): "What do we know about global income inequality?" Journal of Economic Literature, 46, 57-94.

Anderson, T. and C. Hsiao (1981): "Estimation of dynamic models with error components," Journal of the American Statistical Association, 76, 589-606.

Arellano, M. and S. Bond (1991): "Some tests of specification for panel data: Monte carlo evidence and an application to employment equations," Review of Economic Studies, 58, 277-97.

Arellano, M. and O. Bover (1995): "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, 68, 29-51. Atkinson, A. B. (1997): "Bringing income distribution in from the cold," The Economic Journal, 107, 297-321.

Barham, B. and S. Boucher (1998): "Migration, remittances, and inequality: estimating the net effects of migration on income distribution," Journal of Development Economics, 55, 307-331.

Barro, R. J. (1996): "Democracy and growth," Journal of Economic Growth, 1, 1-27.

Barro, R. J. (2000): "Inequality and growth in a panel of countries," Journal of Economic Growth, 5, 5-32.

Beddoes, Z. M. (2012): "Special report: For richer, for poorer," The Economist.

Belke, A., F. Dobnik, and C. Dreger (2011): "Energy consumption and economic growth: New insights into the cointegration relationship," Energy Economics, 33, 782789.

Bennett, D. L. and R. K. Vedder (2013): "A dynamic analysis of economic freedom and income inequality in the 50 U.S. states: Empirical evidence of a parabolic relationship," Journal of Regional Analysis and Policy, 43, 42-55.

Blundell, R. and S. Bond (1998): "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, 87, 115-143.

Borenszteina, E., J. D. Gregorio, and J.-W. Lee (1998): "How does foreign direct investment affect economic growth?" Journal of International Economics, 45, 115-135.

Borghesi, S. (1999): "The environmental Kuznets curve: a survey of the literature," Mimeo, European University Institute.

Borghesi, S. (2000): "Income inequality and the environmental Kuznets curve," Nota di Lavoro, Fondazione Eni Enrico Mattei (83.2000).

Bourguignon, F. and C. Morrisson (2002): "Inequality among world citizens: 1820-1992," American Economic Review, 92, 727-744.

Castello, A. and R. Domenech (2002): "Human capital inequality and economic growth: Some new evidence," The Economic Journal, 112, C187-C200.

Chatterjee, S. and S. J. Turnovsky (2012): "Infrastructure and inequality," European Economic Review, 56, 1730-1745.

Chen, P.-Y., S.-T. Chen, and C.-C. Chen (2012): "Energy consumption and economic growth - new evidence from meta analysis," Energy Policy, 44, 245-255.

Daly, M. C. and D. J. Wilson (2013): "Inequality and mortality: New evidence from U.S. county panel data," Technical report, Federal Reserve Bank of San Francisco.

Deaton, A. (2003): "Health, inequality, and economic development," Journal of Economic Literature, XLI, 113-158.

Esfahania, H. S. and M. T. Ramirez (2003): "Institutions, infrastructure, and economic growth," Journal of Development Economics, 70, 443- 477.

Foster, V. and D. Bedrosyan (2014): "Understanding co2 emissions from the global energy sector," Technical report, The World Bank.

Gottschalk, P. and T. M. Smeeding (2000): "Empirical evidence on income inequality in industrialized countries," in A. B. Atkinson and F. Bourguignon, eds., Handbook of Income Distribution: Volume 1, the Netherlands, 261-307.

Gregorio, J. D. and J. Lee (2002): "Education and income inequality: New evidence from cross-country data," Review of Income and Wealth, 48, 395-416.

Gupta, S., H. Davoodi, and R. Alonso-Terme (2002): "Does corruption affect income inequality and poverty," Economics of Governance, 3, 23-45.

Hasanov, F. and O. Izraeli (2011): "Income inequality, economic growth, and the distribution of income gains: Evidence from the U.S. states." Journal of Regional Science, 51, 518.

Haughton, J. and S. R. Khandker (2009): Handbook on Poverty and Inequality, Washington, DC: The World Bank.

Herrerias, M., R. Joyeux, and E. Girardin (2013): "Short- and long-run causality between energy consumption and economic growth: Evidence across regions in china," Applied Energy, 112, 1483-1492.

Herzer, D. and P. Nunnenkamp (2011): "Income inequality and health: New evidence from panel data," Kiel working papers (1736), Kiel Institute for the World Economy.

Hirschman, A. O. and M. Rothschild (1973): "The changing tolerance for income inequality in the course of economic development," Quarterly Journal of Economics, 87, 544-566.

Huang, B.-N., M. Hwang, and C. Yang (2008): "Causal relationship between energy consumption and gdp growth revisited: A dynamic panel data approach," Ecological Economics, 67, 41-54.

IEA (2016): "Global energy trends," International Energy Agency.

IMF (2014): "Fiscal policy and income inequality," IMF Policy Paper, International Monetary Fund.

Judson, R. A. and A. L. Owen (1999): "Estimating dynamic panel data models: A guide for macroeconomists," Economics Letters, 65, 9-15.

Kuznets, S. (1955): "Economic growth and income inequality," American Economic Review, 45, 128.

Lawson, J. G. R. and J. Hall (2016): "2016 economic freedom dataset," in Economic Freedom of the World: 2016 Annual Report, Fraser Institute, URL http://www.freetheworld.com/ datasets_efw.html.

Lee, C.-C. (2005): "Energy consumption and GDP in developing countries: A cointegrated panel analysis," Energy Economics, 27, 415-427.

List, J. A. and C. A. Gallet (1999): "The Kuznets curve: What happens after the inverted-u?" Review of Development Economics, 3, 200-206.

Milanovic, B. (2011): "A short history of global inequality: The past two centuries," Explorations in Economic History, 48, 494-506.

Nickell, S. (1981): "Biases in dynamic models with fixed effects," Econometrica, 49, 1417-1426.

North, D. C. (1981): Structure and Change in Economic History, NYC, NY: Norton.

North, D. C. (1989): "Institutions and economic growth: An historical introduction," World Development, 17, 1319-32.

North, D. C. and R. Thomas (1973): The Rise of the Western World: A New Economic History, Cambridge, MA: Cambridge UP.

Nuxoll, D. A. (1994): "Differences in relative prices and international differences in growth rates," American Economic Review, 84, 1423-1436.

OECD (2014): "Does income inequality hurt economic growth?" Focus on Inequality and Growth.

OECD (2015): "Employment in the public sector," Government at a Glance 2015.

Ozturk, I. (2010): "A literature survey on energy-growth nexus," Energy Policy, 38, 340349.

Padilla, E. and A. Serrano (2006): "Inequality in co2 emissions across countries and its relationship with income inequality: A distributive approach," Energy Policy, 34, 1762 - 1772.

Piketty, T. (2013): Capital in the Twenty-First Century, Cambridge, MA: Harvard UP.

Piketty, T. (2015): "Putting distribution back at the center of economics: Reflections on capital in the twenty-first century," Journal of Economic Perspectives, 29, 67-88.

Podobnik, B., J. Shao, D. Njavro, P. C. Ivanov, and H. Stanley (2008): "Influence of corruption on economic growth rate and foreign investment," European Physical Journal B, 63, 547-550.

Torras, M. and J. K. Boyce (1998): "Income, inequality, and pollution: a reassessment of the environmental Kuznets curve," Ecological Economics, 25, 147-160.