Kraay, Aart2015-12-182015-12-182015-11https://hdl.handle.net/10986/23456This paper revisits four recent cross-country empirical studies on the effects of inequality on growth. All four studies report strongly significant negative effects, using the popular system generalized method of moments estimator that is frequently used in cross-country growth empirics. This paper shows that the internal instruments relied on by this estimator in these inequality-and-growth regressions are weak, and that weak instrument-consistent confidence sets for the effect of inequality on growth include a wide range of positive and negative values. This suggests that strong conclusions about the effect of inequality on growth— in either direction—cannot be drawn from these studies. This paper also systematically explores a wide range of alternative sets of internal instruments, and finds that problems of weak instruments are pervasive across these alternatives. More generally, the paper illustrates the importance of documenting instrument strength, basing inferences on procedures that are robust to weak instruments, and considering alternative instrument sets when using the system generalized method of moments estimator for cross-country growth empirics.en-USCC BY 3.0 IGOGROWTH RATESSIGNIFICANT RELATIONSHIPPOINT ESTIMATECAPITA INCOMEPOLITICAL ECONOMY CHANNELECONOMIC GROWTHSIGNIFICANT EFFECTDYNAMIC PANELINCOMELAGGED GROWTHCOUNTRY REGRESSIONSECONOMIC REVIEWLAGGED LEVELSECONOMICS LETTERSDEVELOPING COUNTRIESPOLITICAL ECONOMYCROSS‐ COUNTRY DATAPOLICY CIRCLESNEGATIVE RELATIONSHIPPOLICY DISCUSSIONSPOINT ESTIMATESEMPIRICAL GROWTH LITERATUREEMPIRICAL STUDIESANNUAL GROWTHLOG INCOMECOUNTRY REGRESSIONSINEQUALITY VARIABLESLAGGED VALUESCROSS‐COUNTRY DATAINEQUALITY VARIABLESENDOGENOUS VARIABLESEMPIRICAL LITERATUREINSTRUMENTSCROSS‐COUNTRY EVIDENCEREDISTRIBUTIVE EFFECTSSTANDARD DEVIATIONEMPIRICAL RESULTSABSOLUTE VALUEPER CAPITA INCOMEDEVELOPMENT ECONOMICSNEGATIVE GROWTHNEGATIVE IMPACTEMPLOYMENT EQUATIONSPANEL DATA SETSGROWTH EFFECTINEQUALITY MEASURESINCOME INEQUALITYSIGNIFICANCE LEVELSIGNIFICANT NEGATIVEECONOMETRICSECONOMETRIC MODELSTRANSFERSEXPLANATORY VARIABLESPRODUCTGROWTH SPECIFICATIONECONOMIC RESEARCHPOSITIVE RELATIONSHIPDEVELOPMENT RESEARCHCONSUMPTIONHUMAN CAPITALPOLICIESECONOMIC STUDIESSENSITIVITY ANALYSISESTIMATED COEFFICIENTDEPENDENT VARIABLEPOLICY MAKERSMACROECONOMICSERROR TERMSGROWTH LITERATUREDYNAMIC PANELINEQUALITY DATANEGATIVE EFFECTCOUNTRY‐SPECIFICINCOME DISTRIBUTIONLAGGED INEQUALITYESTIMATED COEFFICIENTSCROSS‐ COUNTRYERROR TERMREGRESSION SAMPLECOUNTRY DATAGROWTH EMPIRICSENDOGENOUS VARIABLESECONOMICSEXPLANATORY POWERINEQUALITY MEASUREHUMAN CAPITALECONOMIC INEQUALITYDATA SETSECONOMIC DEVELOPMENTGROSS INCOMEPOSITIVE EFFECTGROWTH REGRESSIONSDATA SETGDPREDISTRIBUTIVE POLICIESGROWTH REGRESSIONSGROWTH REGRESSIONINCOME SHARESLONG‐RUNGROWTH REGRESSIONAVERAGE ANNUALPOLICY IMPLICATIONSGINI COEFFICIENTEMPIRICAL EVIDENCEPOSITIVE GROWTHPOLICY RESEARCHINCREASE GROWTHERROR TERMCROSS‐COUNTRYLAGGED INEQUALITYECONOMIC GROWTHINCOME COEFFICIENTLAGGED CHANGESDEVELOPMENT POLICYINEQUALITYPUBLIC GOODSEXPLANATORY VARIABLESGINI COEFFICIENTGROWTHWorking PaperWorld Bank10.1596/1813-9450-7494