Income inequality and the schooling–growth relationship: evidence from 97 countries

The relationship between schooling and economic growth remains empirically contested: average associations in cross-country panels are often small and unstable. This paper examines whether income inequality conditions the association between schooling and economic growth. Using fixed-effects growth regressions for 97 countries observed over six non-overlapping 5-year periods (1980–2009), the analysis allows the schooling–growth slope to vary across inequality environments. The results show that average within-country schooling–growth associations are imprecise, but a clear pattern emerges once heterogeneity by income inequality is taken into account. In low-inequality environments, schooling is positively associated with growth, and this association attenuates monotonically as inequality rises, becoming weak or negative in the most unequal environments. The attenuation is strongest and most precisely estimated for primary education and, when disaggregated by development level, is concentrated among low-income countries. The pattern is robust to standardized and continuous specifications, alternative human-capital measures, dynamic (lagged-dependent-variable and system-GMM) estimators, country-specific trends, and alternative samples. The analysis documents systematic heterogeneity in schooling–growth associations across inequality environments. The findings suggest that unstable average schooling–growth relationships mask substantial heterogeneity across distributional contexts and that the growth relevance of educational expansion depends critically on the broader inequality environment.