Rethinking Inequality and Growth: The Kuznets Curve after the Millennium

This study aims at re-examining the existence of the Kuznets curve, an inverted U-shaped relationship between economic growth and income inequality, after the Millennium. The study uses two main panel data: GNI per capita as a measurement of economic growth and Gini coefficient as a measurement of income inequality of 91 countries ranging from 2000 to 2012. It estimates a quadratic model using fixed effects and random effects models and uses the Hausman test to select a suitable model. The results show that the relationship between economic growth and Gini coefficient is a U-shaped rather than an inverted-U. This phenomenon may occur because right after the Millennium the labor movement from agricultural sector to industrial sector leads to higher growth with lower inequality. However, some years after the Millennium the emergence of digital economy attracts more skillful labor into the sector and consequently widens the income inequality again.