Do Governance Indicators Predict Inequality? A Panel Non-causality Framework for the Emerging Countries

Abstract

This investigation aims to explore the causal nexus between governance indicators and income inequality for 15 emerging countries for the period 2002–2019. This study focuses on developing countries because income inequality and the quality of the institutions of emerging economies have been the subjects of intense debate within the scientific community for recent decades. For this purpose, this paper conducts the panel non-causality test which is introduced by (Dumitrescu and Hurlin, Economic Modelling 29:1450–1460, 2012). The empirical results of the paper exhibit that, in the panel setting, income inequality can better be predicted using the past and current values of the voice and accountability, the regulatory quality, the rule of law, and the control of corruption. On the contrary, the government effectiveness and the political stability cannot be used to predict future values of the income inequality in these emerging countries. Therefore, one can state that governance quality can be a good predictor of income inequality in emerging economies. The empirical results of this study may provide some implications to the policymakers of developing countries.