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Nonlinear Dynamics in the Finance-Inequality Nexus in China-CHNS Data

Mohammad Masudur Rahman (), Guan Fuquan () and Laila Arjuman Ara ()
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Mohammad Masudur Rahman: School of Business, Zhejiang University City College, Hangzhou 310015, China
Guan Fuquan: School of Economics and Management, Zhejiang A&F University, Hangzhou 311300, China
Laila Arjuman Ara: School of Business Studies, United International University, Dhaka 1210, Bangladesh

Sustainability, 2019, vol. 11, issue 1, 1-12

Abstract: This paper empirically investigates the effects of financial development on incomes of Chinese residents particularly within various income groups using data from six provinces by applying the Quantile Regression model. The Greenwood and Jovanovich hypothesis that illustrates the inverted U shaped relationship between financial development and income inequality is tested. This empirical study demonstrates that financial development has a positive but non-linear effect on the annual income of individuals from various income groups at different quantiles. The effect is an inverted U or Kuznets effect indicating an increase at first and then a drop. As for the distribution of the impact on various income groups, the low-income group is under the most dominant influence followed by the high-income group with the middle-income groups receiving relatively smaller influence. Findings indicate that promoting balanced financial development would help to ease the income gap between Chinese residents.

Keywords: financial development; income inequality; China; quantile regression (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2019
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