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Financial Development and Income Inequality at Different Levels of Institutional Quality

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  • Siong Law
  • Hui Tan
  • W. Azman-Saini

Abstract

We examine whether the relationship between financial development and income inequality varies with levels of institutional quality. The empirical evidence based on the threshold regression approach shows that there indeed exists an institutional quality threshold effect in the relationship between financial development and income inequality. Financial development tends to reduce income inequality only after a certain threshold level of institutional quality has been achieved. Until then, the effect of financial development on income inequality is nonexistent. This finding suggests that institutional quality affects the link between financial development and income inequality, reflecting the notion that better quality finance results in more equal income distribution.

Suggested Citation

  • 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.
  • Handle: RePEc:mes:emfitr:v:50:y:2014:i:s1:p:21-33
    DOI: 10.2753/REE1540-496X5001S102
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    1. repec:eee:eneeco:v:66:y:2017:i:c:p:571-581 is not listed on IDEAS
    2. repec:eee:poleco:v:50:y:2017:i:c:p:171-195 is not listed on IDEAS
    3. Bilin Neyapti & Derin Aksit, 2015. "Income Distribution and Economic Crises," Koç University-TUSIAD Economic Research Forum Working Papers 1523, Koc University-TUSIAD Economic Research Forum.
    4. 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.
    5. Richard Chisik & Bill Battaile & Harun Onder, 2014. "Services, Inequality, and the Dutch Disease," Working Papers 041, Ryerson University, Department of Economics.
    6. Asamoah, Michael Effah & Adjasi, Charles K.D. & Alhassan, Abdul Latif, 2016. "Macroeconomic uncertainty, foreign direct investment and institutional quality: Evidence from Sub-Saharan Africa," Economic Systems, Elsevier, vol. 40(4), pages 612-621.
    7. repec:agr:journl:v:xxiv:y:2017:i:2(611):p:61-74 is not listed on IDEAS
    8. Ahmed, Azleen Rosemy & Masih, Mansur, 2017. "What is the link between financial development and income inequality? evidence from Malaysia," MPRA Paper 79416, University Library of Munich, Germany.
    9. Sturm, Jan-Egbert & De Haan, Jakob, 2016. "Finance and income inequality revisited," Annual Conference 2016 (Augsburg): Demographic Change 145660, Verein für Socialpolitik / German Economic Association.
    10. repec:rye:wpaper:wp041} is not listed on IDEAS
    11. Aïssata COULIBALY, 2016. "Revisiting the Relationship between Financial Development and Child Labor in Developing Countries: Do Inequality and Institutions Matter?," Working Papers 201619, CERDI.
    12. YOUNSI, Moheddine & BECHTINI, Marwa, 2018. "Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests," MPRA Paper 85182, University Library of Munich, Germany.

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