Financial Development and Income Inequality: Is there any Financial Kuznets curve in Iran?

Muhammad Shahbaz, Aviral Tiwari and Sherafatian-Jahromi Reza
Authors registered in the RePEc Author Service: Nanthakumar Loganathan

MPRA Paper from University Library of Munich, Germany

Abstract: This deals with the investigation of the relationship between financial development and income inequality in case of Iran. In doing so, we have applied the ARDL bounds testing approach to examine the long-run relationship in the presence of structural break stemming in the series. The unit root properties have been tested by applying Zivot-Andrews (1992) and Clemente et al. (1998) structural break tests. The VECM Granger causality approach is used to detect the direction of causal relationship between financial development and income distribution. Moreover, Greenwood-Jovanovich (GJ) hypothesis has also been tested for Iranian economy. Our results confirm the long run relationship between the variables. Furthermore, financial development reduces income inequality. Economic growth worsens income inequality, but inflation and globalization improve income distribution. Finally, GJ hypothesis is found as well as U-shaped relationship between globalization and income inequality in case of Iran. This study might provide new insights for policy makers to reduce income inequality by making economic growth more fruitful for poor segment of population and directing financial sector to provide access to financial resources of poor individuals at cheaper cost.

Keywords: Financial Development; Income Inequality; ARDL Bound Testing (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 2012-08-20, Revised 2012-08-26
New Economics Papers: this item is included in nep-ara, nep-fdg, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Financial Development and Income Inequality: Is There Any Financial Kuznets Curve in Iran? (2015)
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