Investigating the Relationship between Income Inequality, Urbanization, and Economic Growth in Provinces of Iran

Abstract

One of the main goals of economic policy-makers is to realize a fair and proper distribution of income in society. Regarding the importance of this issue in Iran and the unfavorable situation of income distribution indicators in its provinces, this study attempts to investigate the relationship between income inequality, urbanization, and economic growth in the provinces of Iran for the period of 2006-2019. Accordingly, to study such a relationship, two approaches have been conducted; First, the causal relationship between income inequality, urbanization, and economic growth was investigated using the method of Dumitrescu-Hurlin (2012). Then, to complete the discussion and determine the impact of urbanization variables and GDP on income inequality, the income inequality model was estimated by considering the spatial structure and accounting for two variables of urbanization and GDP per capita and several control variables using the spatial econometric approach. The results of the Dumitrescu-Hurlin causality test indicate the existence of a one-way causal relationship from urbanization to income inequality and the existence of a two-way causal relationship between GDP and income inequality in the Provinces of Iran. The results of estimating the model using the spatial panel approach show that the variables of urbanization rate, GDP per capita, and literacy are the most important variables affecting the income inequality of the provinces of Iran.

Keywords

• income inequality
• economic growth
• urbanization
• dumitrescu-hurlin causality test
• spatial panel model.