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The Relationship between Financial Development and Income Inequality in Emerging Market Economies: Heterogeneous Panel Data Analysis on Moderator Effect of Institutions under Cross-Sectional Dependence

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  • Fatma UNLU

Abstract

This study aims to investigate the moderator effect of institutions on the relationship between financial development and income inequality for emerging market economies. Under cross-sectional dependence, the procedure for heterogeneous panel data analysis was followed by using the data of countries for the period 2002-2018. According to the findings obtained from the analyzes using the CCEMG estimator, while the effect of quality of institutions on income inequality is positive, the effect of the moderator variable is negative in the long run. On the other side, financial development does not have a significant effect on income inequality. These findings indicate that financial development has income inequality-reducing effects only under the presence of quality of institutions. Additionally, Dumitrescu-Hurlin panel causality test results confirm bidirectional causality relationships between all variables (financial development, income inequality, corruption and moderator variable) included in the analysis.

Suggested Citation

  • Fatma UNLU, 2022. "The Relationship between Financial Development and Income Inequality in Emerging Market Economies: Heterogeneous Panel Data Analysis on Moderator Effect of Institutions under Cross-Sectional Dependenc," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 16(1), pages 107-137.
    • Handle: RePEc:bdd:journl:v:16:y:2022:i:1:p:107-137
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    Keywords

    Financial development; income inequality; institutional quality; emerging market economies; panel data analysis.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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