Financial development, income inequality, and country risk

Yi-Bin Chiu and Chien-Chiang Lee ()

Journal of International Money and Finance, 2019, vol. 93, issue C, 1-18

Abstract: This study explores the non-linear effects of both finance development and country risks on income inequality when countries’ risk changes through a broad sample of 59 countries over the period 1985–2015. Using the panel smooth transition regression model, our results present evidence of the different relationships among income inequality, finance development, and country risks under different degrees of country risk. For the full sample, we find evidence of the inequality-widening hypothesis under unstable economic, stable financial, and stable political environments. For the sub-samples, under stable economic and financial environments, high-income countries’ income inequality can be improved through financial development. Moreover, we find a positive relationship between financial development and income inequality for low-income countries.

Keywords: Income inequality; Financial development; Economic risk; Financial risk; Political risk; Panel smooth transition regression (search for similar items in EconPapers)
JEL-codes: C33 G00 G28 O15 O16 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:93:y:2019:i:c:p:1-18

DOI: 10.1016/j.jimonfin.2019.01.001

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