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Income disparities and financial development: evidence from a panel firm-level analysis

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  • Chrysovalantis Amountzias

    (University of Hertfordshire
    Hertfordshire Business School)

Abstract

This paper explores the effects of financial development on income disparities when certain control parameters are taken into consideration. The dataset consists of 4373 manufacturing and services firms across the globe over 2011–2020. Income inequality is captured by the gap between capital and labour earnings expressed by two ratios according to firms’ total asset valuation and profitability. The explanatory variables are divided into four groups: the indicators of financial development, the ratios of firms’ growth in the markets, their level of indebtedness and institutional regulation. The results suggest that financial development exerts a significant effect on the capital-to-labour earnings ratio according to the indicators taken into consideration. Excessive debt tends to worsen this gap, while institutional regulations promoting competition play a significant role in reducing income disparities. The robustness of the results is also checked when the constituent firms are categorised according to their size and their operating region.

Suggested Citation

  • Chrysovalantis Amountzias, 2024. "Income disparities and financial development: evidence from a panel firm-level analysis," Empirical Economics, Springer, vol. 66(1), pages 175-206, January.
    • Handle: RePEc:spr:empeco:v:66:y:2024:i:1:d:10.1007_s00181-023-02458-y
    DOI: 10.1007/s00181-023-02458-y
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    More about this item

    Keywords

    Income inequality; Financial development; Market capitalisation; Firms; Panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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