Financial development and income inequality: A nonlinear econometric analysis of 21 African countries, 1994-2015

Lindokuhle Talent Zungu () and Lorraine Greyling ()
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Lindokuhle Talent Zungu: University of Zululand
Lorraine Greyling: University of Zululand

No 73, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: A panel data analysis of financial inequality was conducted using the PSTR model to determine the threshold level at which excessive financial development worsens inequality. The results reveal evidence of a nonlinear effect between financial development and income inequality where the optimal level of financial development is found to be 19% as a share of GDP above which financial development increases inequality in African countries. The findings combine into a U-shape relationship, in line with other research in African studies. In this particular case, policy-makers are challenged to come up with policies that enforce the distributive effects of financial development with a view to share wealth equitably.

Keywords: Financial development; income inequality; PSTR model (search for similar items in EconPapers)
JEL-codes: C23 O15 O16 (search for similar items in EconPapers)
Date: 2024-09
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Published in ERSA Working Paper Series, September 2024

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