IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v26y2021i2p2766-2775.html
   My bibliography  Save this article

Meditation for level of institutional quality to combat income inequality through financial development

Author

Listed:
  • Ghulam Rasool Madni
  • Awais Anwar

Abstract

Institutional role to perpetuate the relationship between financial development and income inequality has significant importance from policy perspectives. The broadening income inequality and its procurement through financial sector is attracting the worldwide attention of researchers now days. This study is an attempt to investigate the relationship of income inequality and financial development varying with level of institutional quality. To this end, unbalanced panel data set for 124 countries covering the time span 1990–2015 is used applying the instrumental variable threshold regression approach. The estimated results highlight that embedded efficient institutional framework of a country assures more income equality with financial development. Moreover, GDP growth increases the income inequality if institutional quality is below the threshold level while educational attainment is a major factor to decrease it. In respect of policy implications, financial sector may be fruity to overcome income inequality if policy makers bring the level of institutional quality up to threshold level of that country.

Suggested Citation

  • Ghulam Rasool Madni & Awais Anwar, 2021. "Meditation for level of institutional quality to combat income inequality through financial development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2766-2775, April.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:2:p:2766-2775
    DOI: 10.1002/ijfe.1932
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.1932
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.1932?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
    2. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    3. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(5), pages 813-843, October.
    4. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    5. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    6. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March.
    7. Gine, Xavier & Townsend, Robert M., 2004. "Evaluation of financial liberalization: a general equilibrium model with constrained occupation choice," Journal of Development Economics, Elsevier, vol. 74(2), pages 269-307, August.
    8. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    9. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    10. Bordo, Michael D. & Meissner, Christopher M., 2012. "Does inequality lead to a financial crisis?," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2147-2161.
    11. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    12. Siong Law & Hui Tan & W. Azman-Saini, 2014. "Financial Development and Income Inequality at Different Levels of Institutional Quality," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S1), pages 21-33.
    13. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-1245, March.
    14. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    15. Facundo Alvaredo & Lucas Chancel & Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2018. "The Elephant Curve of Global Inequality and Growth," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 103-108, May.
    16. Easterly, William & Fischer, Stanley, 2001. "Inflation and the Poor," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 160-178, May.
    17. Hui-Boon Tan & Siong-Hook Law, 2012. "Nonlinear dynamics of the finance-inequality nexus in developing countries," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 551-563, December.
    18. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    19. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    20. Abdul Jalil & Mete Feridun, 2011. "Long-run relationship between income inequality and financial development in China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 16(2), pages 202-214.
    21. Thomas Piketty & Emmanuel Saez, 2014. "Inequality in the long run," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-01053609, HAL.
    22. Andrés Fernández & César E. Tamayo, 2017. "From Institutions To Financial Development And Growth: What Are The Links?," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 17-57, February.
    23. Alberto Chong & Mark Gradstein, 2007. "Inequality and Institutions," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 454-465, August.
    24. Christopher Brown, 2005. "Is There an Institutional Theory of Distribution?," Journal of Economic Issues, Taylor & Francis Journals, vol. 39(4), pages 915-931, December.
    25. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    26. Georg R. G. Clarke & Lixin Colin Xu & Heng-fu Zou, 2006. "Finance and Income Inequality: What Do the Data Tell Us?," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 578-596, January.
    27. Sebastian Jauch & Sebastian Watzka, 2011. "Financial Development and Income Inequality: A Panel Data Approach," CESifo Working Paper Series 3687, CESifo.
    28. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    29. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    30. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    31. Hamori, Shigeyuki & Hashiguchi, Yoshihiro, 2012. "The effect of financial deepening on inequality: Some international evidence," Journal of Asian Economics, Elsevier, vol. 23(4), pages 353-359.
    32. Ghulam Rasool Madni, 2019. "Probing Institutional Quality Through Ethnic Diversity, Income Inequality and Public Spending," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(2), pages 581-595, April.
    33. Peter A. Diamond, 2016. "Addressing The Forces Driving Inequality In The United States," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 403-411, July.
    34. Kim, Dong-Hyeon & Lin, Shu-Chin, 2011. "Nonlinearity in the financial developmentâincome inequality nexus," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 310-325, September.
    35. Kosta Josifidis & Novica Supić & Emilija Beker Pucar, 2017. "Institutional Quality and Income Inequality in the Advanced Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(2), pages 169-188, March.
    36. Seven, Unal & Coskun, Yener, 2016. "Does financial development reduce income inequality and poverty? Evidence from emerging countries," Emerging Markets Review, Elsevier, vol. 26(C), pages 34-63.
    37. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    38. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
    39. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    40. Mookerjee, Rajen & Kalipioni, Paul, 2010. "Availability of financial services and income inequality: The evidence from many countries," Emerging Markets Review, Elsevier, vol. 11(4), pages 404-408, December.
    41. repec:idb:brikps:39798 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Akisik, Orhan & Gal, Graham, 2023. "IFRS, financial development and income inequality: An empirical study using mediation analysis," Economic Systems, Elsevier, vol. 47(2).
    2. Rym Ayadi & Sami B. Naceur & Sandra Challita, 2023. "Does income inequality really matter for credit booms?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(1), February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2023. "Financial structure and income inequality," Journal of International Money and Finance, Elsevier, vol. 131(C).
    2. Roya Taherifar & Mark J. Holmes & Gazi M. Hassan, 2023. "Does economic openness matter in the impact of financial development on income inequality?," Working Papers in Economics 23/04, University of Waikato.
    3. Sturm, Jan-Egbert & De Haan, Jakob, 2016. "Finance and income inequality revisited," VfS Annual Conference 2016 (Augsburg): Demographic Change 145660, Verein für Socialpolitik / German Economic Association.
    4. Anjan K. Saha & Vinod Mishra & Russell Smyth, 2021. "Financial development and top income shares in OECD countries," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 952-978, January.
    5. Hsieh, Joyce & Chen, Ting-Cih & Lin, Shu-Chin, 2019. "Financial structure, bank competition and income inequality," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 450-466.
    6. Günay ÖZCAN, 2020. "Financial development and income inequality: An empirical analysis on the emerging market economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(624), A), pages 85-96, Autumn.
    7. Chiu, Yi-Bin & Lee, Chien-Chiang, 2019. "Financial development, income inequality, and country risk," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 1-18.
    8. Dirk Bezemer & Anna Samarina, 2019. "Debt shift, financial development and income inequality," DNB Working Papers 646, Netherlands Central Bank, Research Department.
    9. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    10. Meniago, Christelle & Asongu, Simplice A., 2018. "Revisiting the finance-inequality nexus in a panel of African countries," Research in International Business and Finance, Elsevier, vol. 46(C), pages 399-419.
    11. Kim, Dong-Hyeon & Lin, Shu-Chin, 2011. "Nonlinearity in the financial developmentâincome inequality nexus," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 310-325, September.
    12. Li, Xiang & Su, Dan, 2020. "Capital account liberalisation does worsen income inequality," IWH Discussion Papers 7/2020, Halle Institute for Economic Research (IWH).
    13. Dong-Hyeon Kim & Joyce Hsieh & Shu-Chin Lin, 2021. "Financial liberalization, political institutions, and income inequality," Empirical Economics, Springer, vol. 60(3), pages 1245-1281, March.
    14. Barhoom Faeyzh, 2023. "Revisiting the Financial Development and Income Inequality Nexus: Evidence from Hungary," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 11(1), pages 227-257, October.
    15. Baiardi, Donatella & Morana, Claudio, 2018. "Financial development and income distribution inequality in the euro area," Economic Modelling, Elsevier, vol. 70(C), pages 40-55.
    16. Salwa Trabelsi, 2019. "The governance threshold effect on the relationship between public education financing and income inequality," Economics Bulletin, AccessEcon, vol. 39(2), pages 1057-1075.
    17. Muhammad Shahbaz & Nanthakumar Loganathan & Aviral Tiwari & Reza Sherafatian-Jahromi, 2015. "Financial Development and Income Inequality: Is There Any Financial Kuznets Curve in Iran?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(2), pages 357-382, November.
    18. Gravina, Antonio Francesco & Lanzafame, Matteo, 2021. "Finance, globalisation, technology and inequality: Do nonlinearities matter?," Economic Modelling, Elsevier, vol. 96(C), pages 96-110.
    19. Mohamed Chakroun, 2020. "Threshold effects in the relationship between financial development and income inequality," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(3), pages 365-387, July.
    20. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:26:y:2021:i:2:p:2766-2775. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.