The Effect of Education on Income Inequality in Selected Islamic Countries

The impact of education on income inequality remains a challenging issue at the core of economic debates. The present study attempts to investigate the effect of income inequality in a selection of Islamic countries during 1990-2013. Method of panel data has been implemented, and the fixed effects are examined against the random ones by the Hausman test. The impacts of gross domestic product (GDP) and training at primary, secondary and university levels on income inequality is investigated in the selected Islamic countries. Findings indicate that the enrolment rate in primary and secondary schools has a significant negative effect on income inequality, and the enrolment rate in university has a significant positive effect on income inequality. Thus, training in primary and secondary schools might reduce income inequality, and education in universities can increase income inequality because of the higher financial capability of certain classes of people and the expertise they have acquired. Likewise, the Kuznets inverted-U hypothesis is approved due to the positive and statistically significant estimated coefficient of IJAPS, Vol. 14, No. 2, 61-78, 2018 Effect of Education 62 income and negative and significant of its squared value. This finding indicates that in the first steps of economic growth, income distribution is more unequal and this inequality is gradually reduced until finally after the fulfilment of economic growth and development, the income distribution turns toward equality.