Financial Development and Income Inequality: Long-Run Relationship and Short-Run Heterogeneity

Wang Chen () and Takuji Kinkyo

Emerging Markets Finance and Trade, 2016, vol. 52, issue 3, 733-742

Abstract: This article examines the dynamic relationship between financial development and income inequality using the PMG. We find that financial development will reduce inequality in the long run, while it can increase inequality in the short run. Using the estimates of country-specific short-run coefficients, we also find that adverse short-run effects of financial development are associated with the vulnerabilities of countries in terms of their greater susceptibility to crises and poor quality of governance. Good governance seems to be important for achieving inclusive growth though financial development.

Date: 2016
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DOI: 10.1080/1540496X.2016.1116281

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