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Economic Growth, Financial Development, and Income Inequality

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  • Donghyun Park
  • Kwanho Shin

Abstract

The central objective of our article is to empirically examine the relationship between financial development and income inequality. Theoretically, there are grounds for both a positive and negative relationship between the two variables. Our main finding is that financial development contributes to lower inequality up to a point, but as financial development proceeds further, it contributes to higher inequality. We also find that when the ratio of primary schooling to total schooling increases and law and order improves, financial development becomes more effective in reducing inequality. Finally, we find that financial inclusion is particularly effective in lowering income inequality.

Suggested Citation

  • Donghyun Park & Kwanho Shin, 2017. "Economic Growth, Financial Development, and Income Inequality," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(12), pages 2794-2825, December.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:12:p:2794-2825
    DOI: 10.1080/1540496X.2017.1333958
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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G01 - Financial Economics - - General - - - Financial Crises
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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