A Revisit of the "Growth-Inequality-Poverty" Relationship: the Role of Institutional Quality

Abstract

This paper is motivated by empirical observations on the interaction between income inequality and growth in reducing poverty taking into account the role that may play the quality institution. In order to investigate this question, a simultaneous equation model has been developed in a way that endogenizes economic growth and allows institutional quality to affect poverty. Using data on a sample of 70 countries over the period 1990-2010, the findings provide evidence of a positive association between income inequality and economic growth in one hand, and a positive association between income inequality and poverty on the other. We fin also that improvement in institutional quality is the key channel for poverty reduction.

Keywords: Economic growth, Inequality, Institution, Poverty.