The Connection between Inequality, Democracy and Governance: Evidence from Panel Cointegration and Granger non-causality Approach

Income inequality has been widely recognized as one of the most pressing socio-economic challenges for policymakers around the world. Strong democratic institutions may contribute to a more equitable distribution of income by promoting transparency and guaranteeing accountability. This study investigates the predictive causality and long-term relationship between democracy, governance, and inequality across three country income groups: high-income, middle-income, and low-income, using data from ۲۰۰۶ to ۲۰۲۳. The analysis employs Panel co-integration, FMOLS and DOLS methodology, the Dumitrescu-Hurlin (۲۰۱۲) panel causality test, Pooled Mean Group regression and regression with Driscoll-Kraay standard errors. The Dumitrescu–Hurlin test suggests bidirectional predictive causality between democracy and inequality. However, these findings should be interpreted as statistical predictability rather than structural causation. Furthermore, long-term regression results (FMOLS and DOLS) reveal substantial heterogeneity across income groups. Specifically, democracy variable is associated with lower income inequality in high-income economies, whereas its effect appears positive in middle- and low-income economies.

کلیدواژه ها:

Inequality ، Democracy ، Governance ، Global countries ، Panel Cointegration