Does Financial Sector Development Increase Income Inequality? Some Econometric Evidence from Bangladesh

Abu Wahid, Muhammad Shahbaz, Mehmood Shah and Mohammad Salahuddin
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Mehmood Shah: University of Management and Technology, Lahore, Pakistan
Mohammad Salahuddin: Southeast University Banani, Dhaka, Bangladesh

Indian Economic Review, 2012, vol. 47, issue 1, 89-107

Abstract: This paper is an attempt to examine the relationship between financial development and income inequality. In doing so, we have used Bangladeshi data for the period 1985-2006. We have employed Autoregressive Distributed Lag (ARDL) methodology for cointegration. We have also carried out sensitivity analysis and stability tests. Our findings suggest that financial development increases income inequality. Economic growth seems to equalize the income distribution. Inflation and trade openness also worsen income inequality. Finally, social spending increases income inequality in the country over the long run. This study provides new directions for policy makers to reduce income inequality to share the fruits of economic development among the wider spectrum of the society.

Keywords: Financial Sector; Development; Trade Openness; Income Inequality; Bangladesh (search for similar items in EconPapers)
JEL-codes: D14 D33 F11 (search for similar items in EconPapers)
Date: 2012
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