Essays on inequality and total factor productivity

Abstract: This thesis investigates the effects of income inequality on Total Factor Productivity (TFP). The thesis also aims at empirically exploring the specific channels through which those effects transit. To this end, two levels of empirical analysis are carried out with time series cross-sectional data. The first is a cross-country study, while the second is a country specific case, where South Africa has been selected. It is necessary to mention here that at both levels of analysis, the investigation of this relationship is done in an essay format of four self-contained essays. The first essay (Chapter 2) utilises panel data of a sample group of 88 countries from 1990 to 2014, selected from the developed and developing world. This study seeks to answer the questions about whether income inequality affects TFP, and if so, indicate whether the effect is short- or long-term, – and determine if the effect of income inequality on TFP is the same across regions (developed and developing regions). To this end, I use econometric techniques such as panel cointegration tests, the Fully Modified Ordinary Least Squares (FMOLS) technique and the rolling window OLS regression to study the long-run relationship. I also use Granger causality test in heterogeneous mixed panels for the short-run dynamics. Overall, the results suggest that there is a negative long-run effect of income inequality on TFP only in developing countries (developing regions). Similar evidence for the case of the developed countries (developed regions) is not supported by our estimations. Additionally, the results indicate that income inequality determines TFP in the short term only in 8 countries. Since these findings establish that inequality dulls TFP in developing countries, I recommend that efforts and resources to fight inequality should be focused in developing countries rather than developed countries...Ph.D. (Economics