The impact of risk-based capital rules for international lending on income inequality: Global evidence

Iftekhar Hasan, Gazi Hassan (), Suk-Joong Kim () and Eliza Wu

Economic Modelling, 2021, vol. 98, issue C, 136-153

Abstract: This paper investigates the impact of international bank flows from G10 lender countries on income inequality in 74 borrower countries over 1999–2013. Specifically, we examine the role of international bank flows contingent upon the Basel 2 capital regulation and the level of financial market development in the borrower countries. First, we find that improvements in the borrower country risk weights due to rating upgrades under the Basel 2 framework significantly increase bank flows, leading to improvements in income inequality. Second, we find that the level of financial market development is also important. We report that a well-functioning financial market helps the poor access credit and thereby reduces inequality. Moreover, we employ threshold estimations to identify the thresholds for each of the financial development measures that borrower countries need to reach before realizing the potential reductions in income inequality from international bank financing.

Keywords: Cross-border banking; Basel 2 accord; Income inequality; Financial development (search for similar items in EconPapers)
JEL-codes: E44 F36 G21 H63 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:98:y:2021:i:c:p:136-153

DOI: 10.1016/j.econmod.2021.01.003

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