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Symmetric and Asymmetric Effects of Financial Deepening on Income Inequality in South Africa

Mduduzi Biyase and Carolyn Chisadza

No 202214, Working Papers from University of Pretoria, Department of Economics

Abstract: The aim of this study is to examine the financial development-inequality nexus in South Africa from 1980 to 2017, specifically if financial deepening reduces income inequality. The asymmetric effects of financial deepening on income inequality is investigated by employing the autoregressive distributed lag by Pesaran et al. (2001). The initial results indicate a positive association between financial deepening and income inequality. On further exploration, we find evidence that the Greenwood and Jovanovich hypothesis holds for South Africa. We observe an inverted non-linear relationship between financial deepening and income inequality in the long-run. The results suggest that at early stages of financial development, income inequality increases, but gradually starts to decrease as the financial sector becomes more established in the long-run. The findings highlight the need for policymakers to focus on inclusive financial sector reforms in the early stages of development.

Keywords: financial deepening; income inequality; ARDL; South Africa (search for similar items in EconPapers)
JEL-codes: C22 D63 G20 O55 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2022-02
New Economics Papers: this item is included in nep-cwa and nep-fdg
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