Inequality and Economic Growth in Russia: Econometric Analysis

Abstract

This paper focuses on the study of the correlation between income inequality and economic growth. With the use of an error correction model, a two-way relationship between income inequality and output has been empirically confirmed with regard to Russian data for the period between 1994 and 2020: an increase in inequality leads to a slowdown in the growth of GDP per capita, and an increase in the growth of GDP per capita reduces inequality. Analysis of the panel data on Russian regions performed using a two-step generalised method of moments also indicates that high inequality has a negative effect on the dynamics of GRP. There has not been sufficient evidence found for a quadratic relationship between the aforementioned variables. In the medium and long terms, the impact of inequality on changes in output is not dependent on the profile of inequality. In the short and medium terms, the negative effects on output dynamics are associated with the gap between the rich and the poor, while the degree of wider inequality has no impact.