INTRODUCTION

An important topic of investigation is the connection between income inequality and economic development. This connection has received extensive theoretical and empirical attention in the economics literature. The interaction that seeks to increase economic growth while at the same time decreasing inequality is very critical. However, economists do have different opinions about the nature of the interaction between these two variables. Traditionally, economists have argued that economic growth is a major cause of income inequality. This view is based on the works of classical economists like Marx (1867) and Malthus (1798), and it also refers to Kuznets (1955) and subsequent interpretations of the Kuznets curve, Afan (2023)([1]). On the other hand, Dollar et al. (2015)([2]) found no relationship between equality in incomes and growth. They suggested that some policies to promote equality may promote growth; still, others may have the opposite impact. Assaf (2016) investigated the relationship between growth and income distribution in Jordan([3]). The study used the least squares method. It established that final consumption drives economic activity. This, in turn, results in higher economic growth. Particularly, an increase of one unit in final consumption leads to a 1.59-point increase in GDP. Also, a one-unit rise in government consumption increases GDP by 0.88 points. A population increase by 1 million has the same effect on GDP.

THE RESEARCH PROBLEM AND QUESTION:

One of the problems this study in Jordan is imbalanced income distribution. It is also too concentrated in a tiny elite rather than equitably distributed. That inequitable distribution carries major economic, social, environmental, and other implications. Jordan Economy: The Jordanian economy is poor. Therefore, income distribution matters a lot to many parts of the national economy. It goes on to lead to the following research questions:

• How has the Jordanian economy's income distribution changed from 1980 to 2023?

• How does income distribution affect growth in Jordan during this period?

IMPORTANCE OF THE STUDY:

This is an important study because it deals with a very important issue in theoretical and empirical economics: the relationship between income distribution and economic growth. In the case of the Jordanian economy, this relationship is rather complex, with significant implications. The importance of the subject is relevant not only to policymakers but also to the public, as the understanding of the relationship between income distribution and economic growth is crucial for formulating appropriate economic policies. This kind of understanding will be important in addressing the problems of inequality and in promoting sustainable development in Jordan.

STUDY OBJECTIVES

The research undertaking aims to achieve the following goals:

• To investigate the effect of income distribution on economic growth in Jordan.

• To examine the relationship between income distribution and economic growth in Jordan for the study period.

STUDY HYPOTHESES

• Income distribution has a significant effect on long-term economic growth.

• Income distribution positively influences economic growth in Jordan during the study period.

STUDY METHODOLOGY

The study adopts a quantitative approach that involves the application of the Autoregressive Distributed Lag (ARDL) model to test its hypotheses and achieve its objectives. To this end, the model is applied to find out if there is a long-run relationship between the independent variables, which represent the distribution of income in the Jordanian economy, and the dependent variable, economic growth, over the period of analysis. The study has two main parts as follows:

1. The Interconnection of Inequality, Income Distribution, and Economic Growth: Theoretical Frameworks and Empirical Investigations.

The examination of inequality in relation to economic growth has emerged as a pivotal subject within the realm of economic theory. The investigation into the correlation between inequality and growth can be classified into three separate phases. In the initial phase, as suggested by Kuznets (1955)([4]), it was posited that economic growth initially results in a rise in inequality; however, as development continues, there is a tendency for inequality to diminish over time.

The hypothesis known as the Kuznets Curve suggests that the relationship between economic growth and income inequality follows an inverted U-shaped pattern whereby inequality increases in the earlier stages of economic development but decreases later in the process as the economy develops. However, following stagnation in growth in many countries, there was a shift in emphasis toward the negative consequences of inequality on economic growth, particularly when inequality became a prominent indicator of growth stagnation in the Latin American countries. This shift brought about the second generation of research, which focused on examining the adverse impact of inequality on growth. Leading studies of this era include those by Alesina and Rodrik (1994)([5]), Clarke (1995)([6]), and Aghion et al. (1999)([7]), which have looked at how substantial inequality can hinder economic growth by weakening social cohesion, lessening investment in human capital, and limiting access for the broad population.

Persson and Tabellini (1991)([8]) emphasized the importance of understanding the influence of income inequality on economic growth since it is fundamental to determining whether the distribution of income matters for the rate of economic growth across countries or whether it is not a significant determinant of growth. This study is particularly relevant given the large body of economic literature dealing with the topic, not to mention the historical emphasis on the inverse relationship—that is, the impact of economic growth on income inequality. Their study pointed out the need for further exploration of the potential influence of income inequality on the growth trajectories of economies.

The danger of inequality lies in its ability to perpetuate intergenerational transmission of advantage and privilege, and the persistence of social divisions based on race, gender, and other forms of relative disadvantage. These factors can lower economic efficiency, even if they do not necessarily limit social mobility. Also, high levels of intergenerational inequality may act as a brake on economic growth by potentially hindering rather than facilitating growth (Breen, 1997)([9]).

In a related context, the relationship between inequality and economic growth goes beyond purely economic considerations to encompass social dimensions. Castelló and Doménech (2002)([10]) highlighted the role of human capital as being of great importance in this relationship.

Furthermore, Castelló-Climent (2010)([11]) found that, ceteris paribus, greater inequality in human capital is associated with higher fertility rates and lower life expectancy. These factors, therefore, hinder the accumulation of human capital, thus further hindering economic growth and development. Günther (2007)([12]) modeled education as an important variable that simultaneously influences both economic growth and income inequality. However, his study found that an increase in educational attainment does not always lead to a reduction in inequality.

In addition, Korzeniewicz and Moran (2005)([13]) emphasized the role of formal institutions and rules in determining the relationship dynamics between inequality and economic growth. Nigar (2015)([14]) further hypothesized that a more equal society reinforces the positive impact of institutions on economic growth. Conversely, Michálek and Výbošt'ok (2019)([15]) found that while economic growth is generally associated with a reduction in poverty, increasing income inequality, at the same time, increases the level of poverty.

Based on the above discussion, the relationship between inequality and economic growth in the empirical studies can be divided into two main trends:

The first trend found is the negative relationship between inequality and economic growth.

The studies conducted by Panizza (2002)([16]) and Amarante (2008)([17]) provide significant knowledge about the Latin American context. Moreover, the study by Lechheb, Ouakil, and Jouilil (2019)([18]) points out a negative association between income inequality—assessed using the Gini index—and economic growth, represented by GDP. Similarly, Tabassum and Majeed (2008)([19]) performed an analysis using a sample of 69 developing countries and found that the deficiency of strong credit markets in low-income countries is one of the major reasons that intensifies the strong negative relationship between inequality in income and economic growth. While the direct relationship between economic growth and income inequality might be positive, their research shows that, in the long run, rising income inequality slows down economic growth. Moreover, the study highlights that increased investments in physical and human capital, better trade liberalization, and higher government spending all have statistically significant effects in promoting economic growth and reducing inequality.

Ostry, Loungani, Berg, and Stiglitz (2019)([20]) also demonstrated that inequality has an adverse effect on economic growth. Elaborating on this discovery, Erman and te Kaat (2019)([21]) performed an analysis of 86 countries and found that an unequal distribution of income boosts the growth rates of physically capital-intensive industries but at the same time also reduces the growth rates of human capital-intensive industries. This phenomenon is attributed to a decrease in human capital and increased physical capital accumulation.

The second trend: the positive relationship between income inequality and economic growth.

Several empirical studies, including the work of Hoffmann, Lee, and Lemieux (2020)([22]), have suggested a positive relationship between income inequality and economic growth. In a study by Litschig and Lombardi (2019)([23]), the impact of initial income inequality on subsequent per capita income growth was assessed using subnational data from Brazil covering the period 1970-2000. After controlling for initial per capita income and other standard factors, the study found that subnational regions where a larger share of income is allocated to the middle quintile, at the expense of the bottom quintile, experience faster growth. In contrast, regions where a greater proportion of income is directed to the top quintile, to the detriment of the middle quintile, do not exhibit any increase in growth.

2. Changes in Global Inequality since 1980 to Date

During this period, there has been a significant rise in income inequality in most parts of the world, including advanced economies and a broad spectrum of developing countries. These increasing gaps in income have affected two fundamental concepts in income distribution: functional and personal income distribution. The functional distribution pertains to the division of national income between various forms of remuneration, specifically wages and salaries, alongside profits derived from capital. Conversely, the personal income distribution addresses the apportionment of income across households or individuals, which includes earnings from diverse origins such as labor (encompassing self-employment), capital investments, as well as private and public transfers. The above transfers, including remittances, social security benefits, and social assistance programs, have a profound effect on the income distribution in any society([24]).

The World Social Report 2020 (United Nations, 2020)([25]) highlights a sharp rise in income inequality found in most developed countries, as well as some middle-income countries, such as China, which is known to be the fastest-growing economy in the world. It also states that more than 70 percent of the world's population is experiencing rising inequality, which exacerbates social gaps and harms both economic and social development. The rising gap poses risks to social cohesion and undermines efforts for a more inclusive and sustainable form of growth. Despite the limitations associated with global inequality data, which may have adverse effects on economies and societies, there has been recent progress through the creation of the Standardized World Income Inequality Database (SWIID).

The database contains comparable measures of disposable and market income inequality for 198 countries, with the maximum possible number of years from 1960 to date. Moreover, SWIID provides information on absolute and relative redistribution, which enhances knowledge of global income inequality (Frederick, 2020)([26]).

The World Inequality Lab([27]) also provides a detailed database with global inequality data for 173 countries, which together cover 97% of the world's population, or about 7.5 billion people.

According to the data, Latin America and the Middle East are the regions with the highest levels of inequality in the world. In those regions, the richest 10% of the income distribution holds 54% and 56% of the average national income, respectively. Within Latin America, while inequality has declined in a number of countries, others have seen inequality persist or increase, reflecting the uneven progress made in reducing income inequality in the region as a whole([28]).   In the Middle East, states in the Gulf, including Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates, and Saudi Arabia, show extreme and very unequal distributions of wealth, which have also been mostly constant since the 1990s. In Africa, on the other hand, it is the world's second most unequal region where the richest 10% of the population receives half of the total national income. Contrary to common assumptions, the inequality levels in Africa are not exceptional; they rather closely resemble those found in Latin America and the Middle East, thus underlining the pervasive nature of income inequalities across these regions. Extreme inequality persists in countries with a history of discrimination, extremism, and racial inequality, such as South Africa, which is the most unequal country in the region. In 2019, the top 10% of households in South Africa controlled an estimated 65% of the national income. In fact, persistence of inequality in such countries could be attributed to factors such as the lack of land ownership reforms, the absence of comprehensive social security systems, and failure in implementing progressive tax policies, all of which have contributed to the rise in income inequalities (World Inequality Lab, 2021)([29]).

Europe is still the most equal region of the world, and the top 10% of the population in this region holds 35% of the average national income in 2019. Australia at 35% and New Zealand at 37% globally show much less inequality in their incomes compared to Canada at 43% and the United States at 45%. In the 1990s and 2000s, inequality dramatically rose in both countries; however, it has stabilized in China and has continued to rise in India. This suggests a domestic economic strategy where lower inequality could lead to more rapid poverty alleviation and sustained economic progress. Russia is a dramatic example to the contrary: in 2019, the top 1% of earners garnered 20% of national income a share like that earned by half the population while the share of the top 10% jumped to 46%, reflecting a dramatic increase in inequality (World Inequality Lab, 2021).

Figure (1) World map of the Inequality and Transparency Index in 2020