Main Article Content

Muhammed Ashiq Villanthenkodath
School of Social Sciences and Humanities, B.S. Abdur Rahman Crescent Institute of Science and Technology, Tamil Nadu
Mantu Kumar Mahalik
Department of Humanities and Social Sciences Indian Institute of Technology Kharagpur, West Bengal-721302
Vol. 11 No. 2 (2022), Articles, pages 193-209
Submitted: Aug 4, 2021 Accepted: May 6, 2022 Published: Dec 1, 2022
How to Cite


This study empirically examines the impact of real interest rate on income inequality in India within a Kuznets Curve framework considering the role of economic growth, trade openness and technological innovation as the control variables. This study employs the ARDL bounds test for validating the long-run relationship over the annual data period 1995 to 2019. The results reveal the long-run relationship between the series in India. The findings suggest that the initial increase in interest rate significantly reduces income inequality. But, in a later stage, a threshold exists for such an increased interest rate to revert the prior beneficial impact. This finding further shows that Kuznets’ inverted U-shaped hypothesis is not valid for the relationship between income inequality and real interest rate in India. It shows that the real interest rate impedes income distribution in the long run. These findings are also found to be robust using FMOLS and DOLS estimators. We find that economic growth significantly reduces income inequality, whereas trade openness promotes it. Surprisingly, technological innovation enhances income inequality, but this effect vanishes in the long-run. However, these findings suggest that policymakers in India should not ignore the impeding role of real interest rates while aiming at achieving effective income distribution between haves and have-nots in the long run.


Download data is not yet available.

Article Details


Africa Tax and Inequality Report (2014). "Africa rising? Inequalities and the essential role of fair taxation". Retrieved from

Aghion, P., Akcigit, U., Bergeaud, A., Blundell, R., & Hémous, D. (2018). Innovation and top income inequality. Rev Econ Stud 86(1):1-45.

Aghion, P., Caroli, E., & Penalosa, C. G. (1999). Inequality and economic growth: The perspective of the new growth theories. Journal of Economic Literature, 37(4), 1615-1660.

Agnello, L., Mallick, S. K., & Sousa, R. M. (2012). Financial reforms and income inequality. Economics Letters, 116(3), 583-587.

Ahluwalia, M. S. (1976). Inequality, poverty and development. Journal of Development Economics, 3(4), 307-342.

Alesina, A., & Rodrik, D. (1994). Distributive politics and economic growth. The quarterly journal of economics, 109(2), 465-490.

Anand, S., & Kanbur, S. M. R. (1993). Inequality and development A critique. Journal of Development Economics, 41(1), 19-43.

Aneja, R., Barkha, & Banday, U. J. (2020). Regional Economic Growth and Inequality in India: A Sector-wise Decomposition Analysis. Arthaniti: Journal of Economic Theory and Practice, 0976747920910825.

Angeles, L. (2010). An alternative test of Kuznets' Hypothesis. The Journal of Economic Inequality, 8(4), 463-473.

Ansari, M. A., Villanthenkodath, M. A., Akram, V., & Rath, B. N. (2022). The nexus between ecological footprint, economic growth, and energy poverty in sub-Saharan Africa: A technological threshold approach. Environment, Development and Sustainability.

Auclert, A. (2019). Monetary Policy and the Redistribution Channel. American Economic Review, 109(6), 2333-2367.

Bahmani-Oskooee, M., & Gelan, A. (2008). Kuznets inverted-U hypothesis revisited: A time-series approach using US data. Applied Economics Letters, 15(9), 677-681.

Berisha, E., Gupta, R., & Meszaros, J. (2020). The impact of macroeconomic factors on income inequality: Evidence from the BRICS. Economic Modelling, 91(C), 559-567.

Bhuyan, B., Sahoo, B. K., & Suar, D. (2020). Nutritional status, poverty, and relative deprivation among socio-economic and gender groups in India: Is the growth inclusive? World Development Perspectives, 18, 100180.

Bivens, J. (2015). Gauging the Impact of the Fed on Inequality during the Great Recession. Hutchins Center on Fiscal and Monetary Policy Working Paper No.12.

Blanchard, O. J. (1999). European Unemployment: The Role of Shocks and Institutions. Cambridge MA.

Brown, J. C., Pusey, P. N., Goodwin, J. W., & Ottewill, R. H. (1975). Light scattering study of dynamic and time-averaged correlations in dispersions of charged particles. Journal of physics A: Mathematical and General, 8(5), 664.

Carruth, A. A., Hooker, M. A., & Oswald, A. J. (1998). Unemployment Equilibria and Input Prices: Theory and Evidence from the United States. In The Warwick Economics Research Paper Series (TWERPS) (No. 496; The Warwick Economics Research Paper Series (TWERPS)). University of Warwick, Department of Economics.

Coibion, O., Gorodnichenko, Y., Kueng, L., & Silvia, J. (2017). Innocent Bystanders? Monetary policy and inequality. Journal of Monetary Economics, 88, 70-89.

Datt, G., Ravallion, M., & Murgai, R. (2020). Poverty and Growth in India over Six Decades. American Journal of Agricultural Economics, 102(1), 4-27.

Demirguc-Kunt, A., & Levine, R. (2009). Finance and Inequality: Theory and Evidence (No. w15275). National Bureau of Economic Research.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366a), 427-431.

Eusufzai, Z. (1997). The Kuznets hypothesis: An indirect test. Economics Letters, 54(1), 81-85.

Furceri, D., Loungani, P., & Zdzienicka, A. (2017). The Effects of Monetary Policy Shocks on Inequality. Journal of International Money and Finance, 85, 168-186.

Galor, O., & Moav, O. (2004). From physical to human capital accumulation: Inequality and the process of development. Review of Economic Studies, 71(4), 1001-1026.

Husain, S., Sohag, K., Hasan, R., & Shams, S. M. R. (2020). Interest rate and income disparity: Evidence from Indonesia. Strategic Change, 29(6), 665-672.

Jha, S. K. (1996). The Kuznets curve: A reassessment. World Development, 24(4), 773-780.

Jones CI, Kim J (2018) A Schumpeterian model of top income inequality. J Polit Econ 126(5):1785-1826.

Kar, S., & Sakthivel, S. (2007). Reforms and Regional Inequality in India. Economic and Political Weekly, 42(47), 69-77.

Kuznets, S. (1955). Economic growth and income inequality. American Economic Review, 45(1), 1-28.

Mallick, H., Mahalik, M. K., & Padhan, H. (2020). Does globalization exacerbate income inequality in two largest emerging economies? The role of FDI and remittances inflows. International Review of Economics, 1-38.

Martín-Legendre, J. I., Castellanos-García, P., & Sánchez-Santos, J. M. (2020). Monetary Policy and Income Distribution: Empirical Evidence for the EU-15. Journal of World Economy 55, 121-142.

Minami, R. (1998). Economic development and income distribution in Japan: An assessment of the Kuznets hypothesis. Cambridge Journal of Economics, 22(1), 39-58.

Mumtaz, H., & Theophilopoulou, A. (2017). The Impact of Monetary Policy on Inequality in the UK. An Empirical Analysis. European Economic Review, 98, 410-423.

Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979-1990.

O'Farrell, R., & Rawdanowicz, L. (2017). Monetary Policy and Inequality: Financial Channels. International Finance, 20(2), 174-188.

Pal, S., Villanthenkodath, M. A., Patel, G., & Mahalik, M. K. (2022). The impact of remittance inflows on economic growth, unemployment and income inequality: An international evidence. International Journal of Economic Policy Studies, 16(1), 211–235.

Papanek, G. F., & Kyn, O. (1986). The effect on income distribution of development, the growth rate and economic strategy. Journal of Development Economics, 23(1), 55-65.

Pedroni, P. (2001). Fully modified OLS for heterogeneous cointegrated panels. In Nonstationary panels, panel cointegration, and dynamic panels. Emerald Group Publishing Limited.

Perron, P. (1989). The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis. Econometrica, 57(6), 1361-1401.

Persson, T., & Tabellini, G. (1994). ls lnequality Harmful for Growth. American Economic Review, 84(3), 600-621.

Pesaran, M. H., & Shin, Y. (1999). An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. In S. Strøm (Ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium (pp. 371-413). Cambridge University Press.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.

Phelps, E. S. (1994). Structural slumps: The modern equilibrium theory of unemployment, interest, and assets. Harvard University Press.

Piketty, T., & Saez, E. (2006). The evolution of top incomes: a historical and international perspective. American Economic Review, 96(2), 200-205.

Saez, E. (2017). Income and Wealth Inequality: Evidence and Policy Implications. Contemporary Economic Policy, 35(1), 7-25.

Saiki, A., & Frost, J. (2014). Does Unconventional Monetary Policy Affect Inequality? Evidence from Japan. Applied Economics, 46(36), 4445-4454.

Serneels, P., & Dercon, S. (2021). Aspirations, Poverty, and Education. Evidence from India. The Journal of Development Studies, 57(1), 163-183.

Shameem P, M., Villanthenkodath, M. A., & Chittedi, K. R. (2022). Economic growth and sectoral level electricity consumption nexus in India: New evidence from combined cointegration and frequency domain causality approaches. International Journal of Sustainable Energy, 0(0), 1–18.

Stock, J. H., & Watson, M. W. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica: journal of the Econometric Society, 783-820.

Villanthenkodath, M. A., & Mahalik, M. K. (2022). Did the COVID-19 Outbreak Asymmetrically Affect the Spot Electricity Price in India? Energy RESEARCH LETTERS, 3(2), 32615.

Villanthenkodath, M. A., & Mohammed, S. P. (2022). Examining the impact of electricity production on economic growth and environmental quality in Japan: A disaggregated level analysis. Environmental Science and Pollution Research.

Villanthenkodath, M. A., Ansari, M. A., Kumar, P., & Raju, Y. N. (2022). Effect of information and communication technology on the environmental sustainability: An empirical assessment for South Africa. Telematics and Informatics Reports, 7, 100013.

Villanthenkodath, M. A., Mahalik, M. K., & Patel, G. (2022). Effects of foreign aid and energy aid inflows on renewable and non-renewable electricity production in BRICS countries. Environmental Science and Pollution Research.