The impact of income gap on the inverted U-shaped total factor productivity and its mechanisms: Evidence from transnational-level analysis

This paper attempts to verify the “inverted U” effect of the income gap on the total factor productivity (TFP) of the country or region by constructing a theoretical model that includes income effects and substitution effects. Based on this, this paper uses the multinational panel data of 53 countries in the world from 1995 to 2014 for empirical research. The research shows that: (1) the income gap has an “inverted U-shaped” effect on the national TFP, and the inflection point is located at about 0.269; (2) The income gap is also verified by the “inverted U” influence mechanism of the national TFP by affecting the income effect and the substitution effect; (3) The difference in the development stage determines that countries should adopt an income distribution policy that is compatible with their own country. The conclusions of this paper strengthen the confidence and determination to improve the supply system and promote regional innovation, and confirm the necessity of promoting global economic restructuring and achieving global inclusive development to a certain extent.