IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Financial Development and Income Inequality: Is there any Financial Kuznets curve in Iran?

  • Muhammad, Shahbaz
  • Tiwari, Aviral
  • Reza, Sherafatian-Jahromi

This deals with the investigation of the relationship between financial development and income inequality in case of Iran. In doing so, we have applied the ARDL bounds testing approach to examine the long-run relationship in the presence of structural break stemming in the series. The unit root properties have been tested by applying Zivot-Andrews (1992) and Clemente et al. (1998) structural break tests. The VECM Granger causality approach is used to detect the direction of causal relationship between financial development and income distribution. Moreover, Greenwood-Jovanovich (GJ) hypothesis has also been tested for Iranian economy. Our results confirm the long run relationship between the variables. Furthermore, financial development reduces income inequality. Economic growth worsens income inequality, but inflation and globalization improve income distribution. Finally, GJ hypothesis is found as well as U-shaped relationship between globalization and income inequality in case of Iran. This study might provide new insights for policy makers to reduce income inequality by making economic growth more fruitful for poor segment of population and directing financial sector to provide access to financial resources of poor individuals at cheaper cost.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://mpra.ub.uni-muenchen.de/40899/1/MPRA_paper_40899.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40899.

as
in new window

Length:
Date of creation: 20 Aug 2012
Date of revision: 26 Aug 2012
Handle: RePEc:pra:mprapa:40899
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. W. Adrián Risso & Edgar J. Sánchez Carrera, 2012. "Inequality and economic growth in China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 5(2), pages 80-90, June.
  2. Colin Kirkpatrick, 2000. "Financial Development, Economic Growth, and Poverty Reduction," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(4), pages 363-388.
  3. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  4. Hamori, Shigeyuki & Hashiguchi, Yoshihiro, 2012. "The effect of financial deepening on inequality: Some international evidence," Journal of Asian Economics, Elsevier, vol. 23(4), pages 353-359.
  5. Patrick Honohan, 2004. "Financial Sector Policy and the Poor : Selected Findings and Issues," World Bank Publications, The World Bank, number 14874, June.
  6. Muhammad Shahbaz & Khalil Ahmad & A. R. Chaudhary, 2008. "Economic Growth and Its Determinants in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 471-486.
  7. Georg R. G. Clarke & Lixin Colin Xu & Heng-fu Zou, 2006. "Finance and Income Inequality: What Do the Data Tell Us?," Southern Economic Journal, Southern Economic Association, vol. 72(3), pages 578-596, January.
  8. Alessandra Bonfiglioli, 2004. "Equities and Inequality," 2004 Meeting Papers 256, Society for Economic Dynamics.
  9. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
  10. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  11. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  12. Hossein Jalilian & Colin Kirkpatrick, 2005. "Does Financial Development Contribute to Poverty Reduction?," Journal of Development Studies, Taylor & Francis Journals, vol. 41(4), pages 636-656.
  13. Stijn Claessens, 2006. "Access to Financial Services: A Review of the Issues and Public Policy Objectives," World Bank Research Observer, World Bank Group, vol. 21(2), pages 207-240.
  14. Neutel, Marcel & Heshmati, Almas, 2006. "Globalisation, Inequality and Poverty Relationships: A Cross Country Evidence," IZA Discussion Papers 2223, Institute for the Study of Labor (IZA).
  15. Helmut Luetkepohl, 2005. "Structural Vector Autoregressive Analysis for Cointegrated Variables," Economics Working Papers ECO2005/02, European University Institute.
  16. Kim, Dong-Hyeon & Lin, Shu-Chin, 2011. "Nonlinearity in the financial developmentâincome inequality nexus," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 310-325, September.
  17. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
  18. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  19. Muhammad Shahbaz, 2010. "Income inequality-economic growth and non-linearity: a case of Pakistan," International Journal of Social Economics, Emerald Group Publishing, vol. 37(8), pages 613-636, July.
  20. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  21. Manoel Bittencourt, 2010. "Financial development and inequality: Brazil 1985–1994," Economic Change and Restructuring, Springer, vol. 43(2), pages 113-130, May.
  22. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
  23. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
  24. Siong Hook Law & Hui Boon Tan, 2009. "The Role Of Financial Development On Income Inequality In Malaysia," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 153-168, December.
  25. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  26. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  27. Abu N. M., Wahid & Muhammad, Shahbaz & Pervez, Azeem, 2011. "Inflation and financial sector correlation: the case of Bangladesh," MPRA Paper 32935, University Library of Munich, Germany, revised 20 Aug 2011.
  28. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
  29. Balisacan, Arsenio M. & Fuwa, Nobuhiko, 2003. "Growth, inequality and politics revisited: a developing-country case," Economics Letters, Elsevier, vol. 79(1), pages 53-58, April.
  30. Peter H. Lindert & Jeffrey G. Williamson, 2001. "Does Globalization Make the World More Unequal?," NBER Working Papers 8228, National Bureau of Economic Research, Inc.
  31. Heshmati, Almas, 2005. "The Relationship between Income Inequality, Poverty, and Globalization," Working Paper Series RP2005/37, World Institute for Development Economic Research (UNU-WIDER).
  32. Murat F. Iyigun & Ann L. Owen, 2004. "Income inequality, financial development, and macroeconomic fluctuations," Economic Journal, Royal Economic Society, vol. 114(495), pages 352-376, 04.
  33. Gimet, Céline & Lagoarde-Segot, Thomas, 2011. "A closer look at financial development and income distribution," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1698-1713, July.
  34. Ang, James, 2009. "Financial Liberalization and Income Inequality," MPRA Paper 14496, University Library of Munich, Germany.
  35. repec:taf:applec:44:y:2012:i:34:p:4527-4538 is not listed on IDEAS
  36. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  37. Sebastian Jauch & Sebastian Watzka, 2011. "Financial Development and Income Inequality: A Panel Data Approach," CESifo Working Paper Series 3687, CESifo Group Munich.
  38. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
  39. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  40. Canavire Bacarreza, Gustavo J & Rioja, Felix, 2008. "Financial Development and the Distribution of Income in Latin America and the Caribbean," IZA Discussion Papers 3796, Institute for the Study of Labor (IZA).
  41. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  42. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  43. Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
  44. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  45. Mohamed Karim KEFI & Hadhek Zouhaier, 2012. "Inequality and Economic Growth," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(8), pages 1013-1025, December.
  46. Ying Ma & Abdul Jalil, 2008. "Financial Development, Economic Growth and Adaptive Efficiency: A Comparison between China and Pakistan," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(6), pages 97-111.
  47. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  48. Barry Eichengreen, 1986. "The Political Economy of the Smoot-Hawley Tariff," NBER Working Papers 2001, National Bureau of Economic Research, Inc.
  49. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
  50. Hui-Boon Tan & Siong-Hook Law, 2012. "Nonlinear dynamics of the finance-inequality nexus in developing countries," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 551-563, December.
  51. Bourguignon, F. & Verdier, T., 1997. "Oligarchy, Democracy, Inequality and Growth," DELTA Working Papers 97-10, DELTA (Ecole normale supérieure).
  52. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
  53. Nicholas Apergis & Ioannis Filippidis & Claire Economidou, 2007. "Financial Deepening and Economic Growth Linkages: A Panel Data Analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(1), pages 179-198, April.
  54. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
  55. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
  56. Jai Mah, 2002. "The impact of globalization on income distribution: the Korean experience," Applied Economics Letters, Taylor & Francis Journals, vol. 9(15), pages 1007-1009.
  57. Perron, Pierre & Vogelsang, Timothy J, 1992. "Testing for a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 467-70, October.
  58. Shahbaz, Muhammad & Islam, Faridul, 2011. "Financial development and income inequality in Pakistan: An application of ARDL approach," MPRA Paper 28222, University Library of Munich, Germany.
  59. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  60. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
  61. Mohsin S. Khan & Abdelhak S Senhadji, 2000. "Financial Development and Economic Growth; An Overview," IMF Working Papers 00/209, International Monetary Fund.
  62. Mohammad Shahbaz, 2009. "A Reassessment of Finance-Growth Nexus for Pakistan: Under the Investigation of FMOLS and DOLS Techniques," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 65-80, January.
  63. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  64. Ghamz-e-Ali Siyal & Asma Mohsin & Khalid Zaman, 2014. "Financial Soundness and Pakistan’s Economics Growth: Turn on the Light," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(9), pages 359-371, September.
  65. Rashmi Umesh Arora, 2012. "Finance and inequality: a study of Indian states," Applied Economics, Taylor & Francis Journals, vol. 44(34), pages 4527-4538, December.
  66. Claessens, Stijn & Perotti, Enrico, 2007. "Finance and inequality: Channels and evidence," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 748-773, December.
  67. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
  68. Enowbi Batuo, Michael & Guidi, Francesco & Mlambo, Kupukile, 2010. "Financial Development and Income Inequality: Evidence from African Countries," MPRA Paper 25658, University Library of Munich, Germany.
  69. Zaman, Khalid & Izhar, Zeeshan & Khan, Muhammad Mushtaq & Ahmad, Mehboob, 2012. "The relationship between financial indicators and human development in Pakistan," Economic Modelling, Elsevier, vol. 29(5), pages 1515-1523.
  70. Zhicheng Liang, 2006. "Financial Development And Income Distribution: A System Gmm Panel Analysis With Application To Urban China," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 31(2), pages 1-21, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:40899. 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: (Joachim Winter)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.