The relationship between income growth and inequality: Evidence from an Asian emerging economy

Abstract

This paper aims to investigate the relationship between income growth and inequality in Vietnam. The study database was collected and calculated from 61 provinces in the period of 2006-2018. The economic equation is estimated with 3 types of data including the full sample, the North and the South regions, and six sub-economic regions. The empirical results present several important scientific contributions. First, the estimated results show the Kuznets curve hypothesis is confirmed in Vietnam when the relationship between income growth and inequality is presented by an inverted U-shaped curve. Second, the Kuznets curve does not occur in the provinces which have a high level of economic liberalization and a large private sector, as evidenced by the analysis of sub-samples. Economic integration is a progressive process provided foreign direct investment decreases inequality in most regions. Educational development helps to reduce inequality but this relationship is only found in the areas populated by ethnic minorities. The labour force has a positive and significant relationship to inequality, especially in regions with labour shortages, although this variable can even help reduce inequality in some sub-economic regions that have an abundance of labour. Tourism development and trade variables are considered to be the sources of inequality in lower development regions. The empirical results suggest that policymakers need to continuously reduce income inequality to support sustainable development in the future.