Study of Non-linear Relationship between Income Inequality and Economic Growth: A Case of Iran

The purpose of this paper is to investigate the effect economic growth to income inequality, both in linear and non-linear specification.
Autoregressive distributed lag model (ARDL) approach has been used co-integration method for long run relationships and error correction model (ECM) for short run behavior. The paper has used annual time series data over the period of 1978 up to 2016.
Empirically, our baseline estimation and sensitivity analyzes have indicated the inequality is negatively and significantly, associated with economic growth in long run. Our finding is contrast to the Kuznets inverted- U and support for the existence of Kuznets U as well as S- shaped curve in Iran. This paper opens up new direction for policy-making authorities to equalize income distribution and understanding the economic situation in the development process. This paper makes a unique contribution to the literature with reference to Iran, being a pioneer attempt that employs ARDL co-integration approach.