The Effect of Different Economic Sector's Value Added on Income Inequality in Iran (Emphasized on Agricultural Sector)

A decrease in income inequality as one of the major objectives of development plans has been constantly taken into consideration in formulation of economic policies and theories. This study aims to examine the effects of values added of different sectors on income inequality in Iran during the period 1971-2010.In this investigation, examine the stationary of time series variables.Then, Johansen-Julius Cointegration Test and Error Correction Model are applied to study and analyze long-term and short-term relationship between the variables. Finally, it is attempted to determine causal relationship between the variables using Granger Causality Test based on ECM model. The results of Johansen-Julius Cointegration test suggest to a negative long-term relationship existing between income inequality and values added of sectors including agriculture, exports and investment; as value added of the mentioned sectors will reduce income inequality. The results achieved by ECM model point out to a negative relationship between values added of different sectors including agriculture, industry and exports with income inequality in short-term. Furthermore, based on Granger causality tests, there is a significant causal relationship between Gini coefficient and such variables. The findings of the study underline the necessity to identify practices for allocating resources, which result in reduction of incomes inequality and lead to a conclusion that as the share of agricultural sector increases, economic distribution will be more balanced. So that the process of economic development of the agricultural sector with the gradual transfer of surplus product, labor and capital to other sectors, Their dominant role in the economy, indicate that the industry and services sectors In case of transfer of income and net saving, production in other parts of the economy is strengthening.