Study of Effective Factors on Income Inequality Decrease in Rural Areas of Iran

Abstract

According to the Ahlowalia hypothesis (1995), the growth oftotal factor productivity (TFP) beside infrastructure investmentsof government lead to income inequality decrease in ruralareas of countries. The main objective of this study is toinvestigate the effects of public investments such as agriculturalR&E, road, education and irrigation on income inequality inrural areas of Iran. In order to get results, we used ARDLmethod and time series data of 1980 to 2008. However, thisresearch attempts to survey the direction of causality betweenthe income inequality and total factor productivity (TFP) inIran. Empirical results show there is a negative relation betweenincome inequality and agricultural TFP in rural areas of Iran.Hence, additional investments on rural education and agriculturalR&E have significance and different impacts on income inequality.Findings showed Ahlowalia hypothesis developed forthe relation among income inequality, TFP and investment inelectricity is not rejected in case of Iran`s rural areas.

Keywords

• Infrastructure investment
• Income inequality
• Ahlowalia hypothesis
• TFP