Income Inequality and Economic Growth : The Effect of Gini Coefficient on GNI

Using panel data from 1960-2000 for 28 countries, this paper explores the relationship between inequality and economic growth.To mitigate the problem of endogeneity, dynamic panel data estimation technique such as difference GMM was used. Estimated results showed positive significant relationship in short to medium term between income inequality and economic growth. The results are robust to sensitivity analysis when the estimation was carried out by running the regression on sub samples to check if the sample selection influnces the results. The results obtained in this study oppose the common belief that growthwill increase by bringing down inequality