Effect of Income Inequality on Economic Growth: Evidence from Bangladesh

Abstract

The primary goal of this research paper is to use panel data covering the years 1977 to 2016 to examine the effects of income inequality on economic growth in Bangladesh. The article makes new contributions to the literature on economic development, indicators of economic progress, and income inequality. Although Bangladesh has made significant strides in the areas of nutrition, literacy, and reproductive health care, all three still have a fundamental element of inequality. Over the time period under consideration, the rising growth was accompanied by growing inequality. The main issue facing Bangladesh right now is lowering income disparity. Income inequality is both a virtue and a vice. It is necessary to strike a balance between the benefits of rewarding hard work and fostering economic progress and the drawbacks of inequality's blatant injustice. The goal of this study is to examine the long-term relationship between inequality and growth in Bangladesh using the Johansen test for co-integration and the Vector error correction model (VECM). According to our findings, income inequality slows the rate of change in economic development. As a result, the policy proposals should be taken with caution.