IDEAS home Printed from
   My bibliography  Save this paper

Does Financial Deepening Improve Income Distribution? A Dynamic Panel Analysis on Developing Countries



This study examines the dynamic effects of financial deepening on income distribution of 35 developing countries during the past two decades of 1980-2000. For this purpose, three existing alternative hypotheses concerning the finance-inequality nexus are tested based on the newly assembled measure of income distribution. The empirical results based on the dynamic panel data technique of General Method of Movement (GMM) suggest that financial deepening significantly reduces income inequality in developing countries. This evidence supports the hypothesis of inequality-narrowing in general. Nonetheless, income inequality responds differently to different financial factors. While the impact is significant from the banking sector, the equity market has no important role to play in this regard. The inverted U-shape finance-inequality relationship is not observed in these nations; instead, a U-shape relationship is detected. These results show that financial deepening reduces income inequality when the private sector credit of the country is below a threshold level. Countries with private sector credit higher than the threshold, on the other hand, will tend to experience a deterioration of their income inequality.

Suggested Citation

  • Hui-Boon Tan & Siong-Hook Law, 2009. "Does Financial Deepening Improve Income Distribution? A Dynamic Panel Analysis on Developing Countries," NUBS Malaysia Campus Research Paper Series 2009-01, Nottingham University Business School Malaysia Campus.
  • Handle: RePEc:nom:nubsmc:2009-01

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Muhammad Shahbaz & Faridul Islam, 2011. "Financial Development And Income Inequality In Pakistan: An Application Of Ardl Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(1), pages 35-58, March.
    2. 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.

    More about this item


    Financial deepening; Income inequality; Gini coefficient; Dynamic panel analysis; GMM;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • G0 - Financial Economics - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nom:nubsmc:2009-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rasyad A. Parinduri). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.