Does Inequality Affect Economic Growth and Poverty in the Indian Economy? an Explorative Analysis Using the Autoregressive Distributed Lag Model (ARDL)

This is the authors' abstract. We don't add key points for this paper.

This paper estimated the effect of income inequality on economic growth (GDP) and poverty, and the effects of growth and poverty on inequality during the period 1977–2021 using the Autoregressive Distributed Lag (ARDL) models and the Toda‐Yamamoto (T‐Y) causality test. The results revealed that when GDP grew by a percentage point, poverty decreased by about 13.2185 percentage points in the long run, and 12.4011 percentage points in the short run ( p < 0.05). In the long run, past values of GDP strongly explain the current growth ( p < 0.05). However, poverty, inequality, and inflation do not show a significant effect on GDP. When GDP increased by a percentage point, there was an increase in inequality by 4.4104 percentage points ( p < 0.10). Further, when there is a percentage point increase in poverty, there is an increase in inequality by 0.1859 percentage points ( p < 0.10). The T‐Y causality test results also revealed a unidirectional relationship running from poverty to inequality, from GDP to inequality, from GDP to poverty, and from inflation to inequality. However, the T‐Y causality does not show causality running from inequality to either poverty or GDP. Results show that income inequality does not hinder economic growth and poverty reduction in the Indian economy.