1.1 Background and Significance

The first two decades after Bangladesh's independence in 1971 were the mostdifficult times in the economic history of the country. In 1970s, Bangladesh wastrying to recover from the devastating effects of war, cyclones, floods, and famines,and the 1980s were dedicated to consolidating successes in restoration andreconstruction. During this period, economic growth remained slow as GDP grew lessthan 4 percent per year, while population growth remained relatively high, which wasat more than 2 percent. As a result, per capita income grew very slowly – in over 1.5percent a year. There was a modest improvement in growth around national income inthe 1980s, which is entirely due to population decline. It is not due to the growth ofGDP without any substantial trend. Bangladesh's GDP growth rate exceeded theworld average in the second half of the 1980s and has remained the same trend sincethen. Investment and savings as a percentage of GDP have steadily increased since themid-1980s. Rahman (2003) identifies economic growth factors that may be workingat the same time. The average growth rate of the service sector across all decades andacross appears to be about the same. One of the notable features of the growth processis the tremendous volatility of 1974-1990 GDP growth, agricultural value-added, and the industrial value was added. Therefore, the period after the reform is stable athigher growth rates. Economic policy has long been aimed at combating poverty byincreasing food production and strengthening education while developing anindustrial and technological base, but severe floods often upset development plans.

..................

1.2 Aim and Objectives

The main aim and the objective of this thesis is to empirically investigate theimpact of the economic growth of income inequality in Bangladesh. The growth in theeconomic sector of the countries will be evaluated based on secondary data collectedfrom recently published work. The specific purpose of the study as the followings:

First, to ascertain empirically how growth influences income in Bangladesh.

Second, to assess the relationship between growth and inequality with nationalincome level in Bangladesh.

Third, to examine the causality of income inequality and growth in Bangladesh.

Fourth, to provide some suggestions on the issues of economic growth andincome inequality study findings.

....................

Chapter 2: Literature Review and Theoretical Framework

2.1 Theoretical Analysis of Growth and Inequality

What is the impact of Growth on income inequality? Theoretical literatureidentified numbers the impact of how inequality affects economic growth it remainsdefinitive. In previous studies, Kaldor (1957) predict the positive impact of inequalityon economic growth. The argument is that the marginal tendency to save the rich ishigher than that of the poor. The higher the degree of inequality, the richer the moresavings, the more investment they can make, which increases capital accumulationand economic growth. Until the mid-nineties, there existed a substantial body ofempirical research suggested that there was a negative effect of income equality ongrowth. Benabou (1996) provides a thorough review of these previous empiricalfindings. Weede (1997) questioning the robustness of previous findings, Proof, couldnot claim a robust relationship between income inequality and growth. Otherresearchers also scrutinize the quality of income sharing data. Deininger and Squire(1996) quality test research available data and growing income inequality trade-offsand failures based on quality-controlled data sets showing important relationshipsbetween income inequality about growth.

Ferdousi and Wang (2014) find that eradication of poverty and inequality andfulfillment of basic needs are the main goals of any government. In Bangladesh,achieving reductions in poverty and inequality is a fundamental challenge.Bangladesh is still a low-income country with considerable poverty, inequality, andpoverty. Most of the workforce is engaged in informal low-productivity and low-income jobs. Poor groups are at a serious disadvantage in terms of property ownershipand lack access to institutional funds as well as basic services including qualityeducation, health care, water, and sanitation. High food prices and high food inflationcause disastrous suffering, especially for those who have little or no income.Inequality arises from a combination of very unequal distributions of physical assetsand human capital. In Bangladesh, there are considerable concerns about wideningincome inequality.

.....................

2.2 Empirical Analysis of Growth and Inequality

There are several empirical studies examining growth and inequality inBangladesh. The main issue of this paper is that all existing empirical studies onimpacts the impact of income inequality on economic growth suffers potentiallyserious data problems. The first issue is the data quality issue. In many cases, previousresearch release of the Deininger and Squire (1996) the data set contains data ofquestionable quality. Like that in research Persson and Tabellini (1994), Alesina andRodrik (1994), Birdsall, and Perotti (1996).

Most studies that estimated the two-way causal relationship between economicgrowth and income inequality used cross-sectional or panel data. As far as we know,in the existing literature, only Kang (2015) and Bahmani-Oskooee, Hegerty, andWilmeth (2008) examined a bidirectional causal relationship between economicgrowth and income inequality using time series analysis. However, Kang (2015) andBahmani-Oskooee et al. (2008) included fiscal redistribution and trade openness intheir estimates, but ignored the influence of other possible determinants. To fill thisgap in the literature, our study uses a time series analysis to capture the heterogeneityof individual countries and examine the bidirectional causal relationship betweeneconomic growth and income inequality, including other explanatory variables.

Chapter 3: The Connection between Growth and Inequality inBangladesh..........................19

3.1 The Effect of Growth on Income Inequality in Bangladesh...........21

3.2 Some Evidance-based Discussion on Economic Growth...............22

Chapter 4: Data Collection and Research Methodology.....................29

4.1 Data Collection.........................29

4.2 Description of Variables........................29

Chapter 5: Results and Discussion........................ 34

5.1 Granger Causality Test Result....................39

5.2 Discussion.......................42

Chapter 5: Results and Discussion

5.1 Granger Causality Test Result

To test the causal relationship between economic growth and inequality, weimplemented Granger causal test on them, the sample interval is from 1983 to 2018.Granger (1988) stated that the Granger test is only available when the variablesinvolved are either stationary or non-stationary but are co-integrated. In our study, wehave shown that all variables (before the first difference) are non-stationary, but afterthe first difference they are stationary, and they are inter-integrated in the long run.Therefore, the Granger test can be performed and the results are shown in Table-The conclusions from the Granger causality test are: firstly, for the nullhypothesis “PER_CAPITA does not Granger Cause GINI”, the probability value of F-statistic is 0.2146>0.05(in the 5% level of significance). Thus, we accept thishypothesis and believe that per capita is not Granger cause of Gini; Secondly, for thenull hypothesis, “GINI dose not Granger cause PER_CAPITA” the probability of F-statistic is 0.0817>0.05. Therefore, the null hypothesis is accepted and the Gini is notGranger cause of per capita.

Chapter 6: Conclusion and Recommendations

6.1 Main Conclusion

The detailed study of the relationship between economic growth and incomeinequality is very complex and is difficult to measure due to the lack of data in certainsituations. Researchers have not yet reached a consensus on how economic growthaffects income inequality; therefore, it is clear that this relationship depends on theregion, time period, analysis method, etc. used in the study. We examined the impactof recent economic growth (based on per capita indicators, poverty, unemploymentand inflation) on income inequality (based on the Gini coefficient) in Bangladeshusing time series data for the period 1983–2018. The root test of the ADF moduleshows that the variables Cointegrated on different orders. Phillips-Ocusiscointegration test points to the existence of non-integrating relationships in theregression model. In the presence of performs an autocorrelation FMOLS (fullymodified least squares) regression method. The results show that per capita incomeand poverty played an important role in improved income distribution in Bangladesh,while unemployment does the opposite, and inflation in the model is negligible. Thisconfirms that there is a significant relationship between economic growth andinequality in the distribution of national income in Bangladesh. The empirical resultsshow that the hypothesis of Deininger and Squire (1996) is confirmed in Bangladesh.However, these results are not consistent with Perotti (1996).

The results of the study have a number of important implications. TheBangladeshi government should consider various development strategies and relatedpolicy options to reduce income inequality. The government can make strong plansand develop appropriate policies to stimulate poverty reduction and reduceunemployment in the country. The government may also consider amending andusing taxation and subsidy systems to reduce the severity of income inequality.

reference(omitted)