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Balancing financialization and equity: the crucial role of democratic governance

Author

Listed:
  • Mallika Saha

    (University of Barishal
    São Paulo State University (UNESP))

  • Kumar Debasis Dutta

    (Patuakhali Science and Technology University
    São Paulo State University (UNESP))

  • Touhidur Rahman

    (Patuakhali Science and Technology University)

Abstract

The increasing influence of financialization (FIN) has been widely debated for its potential to exacerbate income inequality (INQ), particularly in nations with weaker democratic institutions. This research investigates how democracy (DEM) influences the relationship between financialization (FIN) and income inequality (INQ) by examining a panel of 118 countries spanning the period from 2004 to 2022. Utilizing advanced econometric methods, specifically System-GMM estimation, the findings reveal that the FIN–INQ relationship is nonlinear, exhibiting a U-shaped pattern: Financialization initially alleviates income inequality, but after reaching a certain threshold, it begins to intensify income disparities. Additionally, we find that DEM significantly mitigates the adverse effects of FIN on INQ. Strong democratic institutions, through mechanisms such as transparency, accountability, and the protection of labor rights, help prevent wealth concentration and promote a more equitable income distribution. These findings offer critical insights for policymakers, highlighting the need to foster democratic governance to ensure that financialization contributes to equitable economic outcomes and supports sustainable development.

Suggested Citation

  • Mallika Saha & Kumar Debasis Dutta & Touhidur Rahman, 2025. "Balancing financialization and equity: the crucial role of democratic governance," Future Business Journal, Springer, vol. 11(1), pages 1-12, December.
    • Handle: RePEc:spr:futbus:v:11:y:2025:i:1:d:10.1186_s43093-025-00562-2
    DOI: 10.1186/s43093-025-00562-2
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