Many authors have demonstrated that credit market imperfections lead to situations of permanent income inequalities. Depending on the authors, the channels of investment which are at the source of the income formation, differ; whereas some have chosen physical capital investment, the others have preferred human capital investment through education. Our goal was to shed light on the different effects of financial development through these two channels. Our results, based on data from 130 countries from 1960 to 1999, confirm their importance in determining the level of income inequalities but with effects varying with the level of income per capita. We find that, even if financial development globally contributes to the widening of income inequalities (increasingly with the level of income per capita), there is a narrowing effect through the diminution of educational inequalities.
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Paper provided by CERDI in its series Working Papers with number
200409.
Length: 24 Date of creation: 2004 Date of revision: Handle: RePEc:cdi:wpaper:558
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