Income Inequality and Economic Growth in Nepal

Abstract

The trade-off between economic growth and income inequality is a subject widely discussed within Economics. Several studies have revealed different relationships while using various methods. This study used data from 1986-2021 for Nepal to reveal the relationship between economic growth and income inequality. The ADF test was used in the beginning to test for unit roots. Then, the study employed Ordinary Least Squares (OLS) to reveal the parameters. The empirical evidence from the model suggested that economic growth in Nepal, as measured, did not have a significant direct effect on income inequality. Rather, inequality has been persistent over the years in Nepal. Moreover, despite an inverted U-shape being hinted, the data did not provide strong enough evidence to confirm this relationship. As a result, policies targetting income redistribution and reduction of structural inequalities need to be employed to tackle the persistent nature of inequality in Nepal.