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Inequality and credit growth in Russian regions

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  • El-Shagi, Makram
  • Fidrmuc, Jarko
  • Yamarik, Steven

Abstract

We test the Rajan hypothesis using data for Russian regions from 2000 (after the ruble crisis) to 2012 (before the introduction of international sanctions). The Rajan hypothesis predicts that rising income inequality leads politicians to expand credit for the poor, which in turn, fuels a consumer credit boom. Russia provides a unique research opportunity becaise it is a post-communist transition country with 75 diverse regions. We find that a rise in income inequality is positively correlated with personal loan growth in Russia. We also find a statistically weaker, albeit economically larger, relationship between economic inequality and corporate credit. Taken together, our results provide support for the Rajan hypothesis in a country with extreme regional differences and a long history of populist policies.

Suggested Citation

  • El-Shagi, Makram & Fidrmuc, Jarko & Yamarik, Steven, 2020. "Inequality and credit growth in Russian regions," Economic Modelling, Elsevier, vol. 91(C), pages 550-558.
  • Handle: RePEc:eee:ecmode:v:91:y:2020:i:c:p:550-558
    DOI: 10.1016/j.econmod.2019.11.003
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    More about this item

    Keywords

    Income inequality; Bank loans; Rajan hypothesis; Russia;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G01 - Financial Economics - - General - - - Financial Crises
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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