Financial Development and Income Inequality: Evidence From Advanced, Emerging and Developing Economies

Carolyn Chisadza and Mduduzi Biyase

Annals of Financial Economics (AFE), 2023, vol. 18, issue 01, 1-27

Abstract: We investigate the effects of financial development on income inequality for a global sample of countries between 1980 and 2019. The study contributes to the current literature by first, making use of a multifaceted index of financial development that captures different aspects of financial developments over time. Second, we compare the effects of financial development on income inequality across economic classifications, namely advanced, emerging and least developed countries. Last, we investigate the non-linear effects of financial development on income inequality across these economic classifications. The findings indicate that in general, financial development reduces inequality across emerging and least developed countries, but is not statistically significant for advanced countries. However, when we disaggregate the financial development index into its sub-components (financial institutions and financial markets), we find different effects on inequality, based on the levels of development. Further investigation on the dimensions under financial institutions and financial markets (depth, access and efficiency) reveals that banking sector development under financial institutions has income inequality-reducing effects in emerging and least developed countries, while stock market development under financial markets widens inequality in least developed countries. We also find heterogeneous non-linear effects between emerging and least developed countries. The findings in our paper firstly highlight the nuances in financial development depending on the level of development in countries, and secondly that policies focused on financial inclusion of the poor can mitigate inequality.

Keywords: Financial development; financial markets; inequality; financial institutions (search for similar items in EconPapers)
JEL-codes: C22 D63 G20 O55 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010495222410020
Access to full text is restricted to subscribers

Related works:
Working Paper: Financial Development and Income Inequality: Evidence from Advanced, Emerging and Developing Economies (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:afexxx:v:18:y:2023:i:01:n:s2010495222410020

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010495222410020

Access Statistics for this article

Annals of Financial Economics (AFE) is currently edited by Michael McAleer

More articles in Annals of Financial Economics (AFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().