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Inequality, Financial Development and Government: Evidence from Low-Income Developing Countries

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  • Majeed, Dr. Muhammad Tariq

Abstract

The purpose of this study is to examine the impact of financial and economic development on cross-country income inequality using a panel data set from 50 low-income developing counties over a long period 1970-2008. The results show that financial development helps in reducing inequalities, however a non-monotonic relationship between financial development and inequality does not hold. The study finds a non-monotonic relationship between inequality and level of economic development, thus this study supports Kuznets inverted-U hypothesis. The government emerges as a major player in reducing income inequalities as its role is significant in all models. Policy makers should primarily focus on achieving the higher levels of economic development to reduce increasing inequalities. Since financial development, reduces inequalities irrespective of its level, policy makers need to focus more on improvements in financial reforms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50296.

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Date of creation: 30 Sep 2013
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Handle: RePEc:pra:mprapa:50296

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Keywords: Inequality; Financial Development; Government; Developing Countries;

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References

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  1. 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.
  2. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  3. George R. G. Clarke & Lixin Colin Xu & Heng-fu Zou, 2011. "Finance and Income Inequality: What Do the Data Tell Us?," CEMA Working Papers 489, China Economics and Management Academy, Central University of Finance and Economics.
  4. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  5. Muhammad Tariq Majeed & Ronald MacDonald, 2010. "Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries," Working Papers 2010_22, Business School - Economics, University of Glasgow.
  6. Papanek, Gustav F. & Kyn, Oldrich, 1986. "The effect on income distribution of development, the growth rate and economic strategy," Journal of Development Economics, Elsevier, vol. 23(1), pages 55-65, September.
  7. Majeed, Muhammad Tariq & MacDonald, Ronald, 2010. "Corruption and the Military in Politics: Theory and Evidence from around the World," SIRE Discussion Papers 2010-91, Scottish Institute for Research in Economics (SIRE).
  8. Muhammad Tariq Majeed & Ronald MacDonald, 2011. "Corruption and financial intermediation in a panel of regions: cross-border effects of corruption," Working Papers 2011_18, Business School - Economics, University of Glasgow.
  9. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  10. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  11. 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.
  12. Galor, Oded & Moav, Omer, 1999. "From Physical to Human Capital Accumulation: Inequality in the Process of Development," CEPR Discussion Papers 2307, C.E.P.R. Discussion Papers.
  13. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
  14. Majeed, M Tariq, 2011. "Trade, Poverty and Employment: Empirical Evidence from Pakistan," MPRA Paper 45077, University Library of Munich, Germany.
  15. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Muhammad Tariq MAJEED, 2010. "Inequality, Trade Openness And Economic Growth In Asia," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
  17. Ahluwalia, Montek S, 1976. "Income Distribution and Development: Some Stylized Facts," American Economic Review, American Economic Association, vol. 66(2), pages 128-35, May.
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Cited by:
  1. Majeed, Dr. Muhammad Tariq, 2013. "Inequality, Trade and Development: Evidence from Developing Countries," MPRA Paper 50337, University Library of Munich, Germany.

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