Research pick: Eurozone inequalities - "Inequality and economic growth across countries of the Eurozone"

Many nations have recovered to some extent from the economic crash of 2008 and the subsequent financial downturn although on the whole that recovery has been sluggish at best. Tatyana Boikova of the Department of Business Administration, at the Baltic International Academy and Aleksandrs Dahs of the Centre for European and Transition Studies, at the University of Latvia, both in Riga, Latvia, have now demonstrated that this recovery has been very uneven across the European Union’s economic and social area.

Writing in the International Journal of Sustainable Economy, the researchers point out that studies of growth and development do not find a solid relationship between income inequality and the rate of economic growth and there are discrepancies that make interpreting the results and seeing the bigger empirical and theoretical picture difficult.

The team has now explored in detail the impact of income inequality, poverty, and wealth on the rate of economic growth in the Eurozone. “We find that the effect of income inequality on economic growth is statistically insignificant, whereas poverty and savings have a negative, statistically significant effect on growth, while the effect of financial assets is positive and statistically significant,” the team reports. They have also seen a negative, statistically significant effect of consumption on growth and demonstrated that the dynamics of the link between inequality and growth across countries do not take the inverted-U shape curve for all observations and the average values per country in the Eurozone.

“Given the still-sluggish recovery after the financial crisis, specific features of economic cycles within each country should be taken as the basis of the macroeconomic regulation of the Eurozone,” the team concludes. They add that that effort must be aimed at encouraging business investment in order to enhance smart competitiveness and to create long-term economic growth.

Boikova, T. and Dahs, A. (2018) ‘Inequality and economic growth across countries of the Eurozone‘, Int. J. Sustainable Economy, Vol. 10, No. 4, pp.315-339.