FINANCE AND INEQUALITY IN EIGHT ASIAN COUNTRIES: DOES SIZE MATTER?
Keywords:
Income Inequality, Financial Sector Size, Asian Countries
Abstract
The present paper seeks to assess the implications of increasing financial sector size on income inequality in eight Asian countries - Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, and South Korea. Adopting a panel data approach, it document a non-linear relation between income inequality and financial sector size in these countries. More precisely, the increasing financial sector size is favourable to equal income distribution only up until a size threshold, beyond which further expansion of the financial sector can worsen income distribution. The analysis further highlights the income-equalizing effect of economic growth and infrastructure development and the income un-equalizing effect of trade and government expenditures. These results are robust to alternative model specifications and to exclusion of a country at a time from the sample.
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References
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contributed to poverty and inequality reduction in Asia?. Journal of Asian
Economics, 27, 71-86.
Rajan, R., Zingales, L. (2003). The great reversals: the politics of financial
development in the twentieth century. Journal of Financial Economics, 69, 5-50.
Rodriguez-Pose, A., Tselios, V. (2009). Education and income inequality in the
regions of the European Union. Journal of Regional Science, 49, 411-437.
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Washington consensus. WIDER Annual Lecture 2. UNU-WIDER, Helsinki.
Timmer, M.P., de Vries, G. J., de Vries, K. (2014). Patterns of structural change in
developing countries. GGDC Research Memorandum 149.
University of Texas Inequality Project. (2008). Estimated household income
inequality data set 2008. Retrieved from http://utip.gov.utexas.edu/data.html
Yilmazkuday, H. (2011). Thresholds in the finance-growth nexus: a cross-country
analysis. The World Bank Economic Review, 25(2), 278-295.
nexus. Economic Papers, 32(4), 522-534.
Agnello, L., Mallick, S.K., Sousa, R.M., 2012. Financial reforms and income
inequality. Economics Letters 116, 583-587.
Ang, J.B., 2010. Finance and inequality: the case of India. Southern Economic Journal,
76, 738-761.
Asteriou, D., Dimelis, S., Moudatsou, A., 2014. Globalization and income inequality:
a panel data econometric approach for the EU27 countries. Economic Modelling,
36, 592-599.
Bahmani-Oskooee, M., Zhang, R. (2015). On the impact of financial development
on income distribution: time series evidence. Applied Economics, 47(12), 1248-
1271.
Banerjee, A., Newman, A. (1993). Occupational choice and the process of
development. Journal of Political Economy, 101, 274-298.
Beck, T., Degryse, H., Kneer, C. (2014). Is more finance better? Disentangling
intermediation and size effects of financial systems. Journal of Financial Stability,
10, 50-64.
Beck, T., Demirguc-Kunt, A., Levine, R. (2007). Finance, inequality and the poor.
Journal of Economic Growth, 12, 27-49.
Checchetti, G., Kharroubi, E. (2012). Reassessing the impact of finance on growth. BIS
Working Paper No. 381, Bank for International Settlement.
Clarke, G., Xu, L., Zou, H. (2006). Finance and income inequality: what do the data
tell us? Southern Economic Journal, 72(3), 578-596.
Classens, S., Perotti, E. (2007). Finance and inequality: channels and evidence.
Journal of Comparative Economics, 35(4), 748-773.
Coeurѐ, B. (2014). On the optimal size of the financial sector. Speech at the ECB Conference:
The Optimal Size of the Financial Sector. Frankfurt, 2 September, 2014. https://
www.ecb.europa.eu/press/key/date/2014/html/sp140902.en.html(accessed:
June 10, 2015).
Creel, J., Hubert, P., Labondance, F. (2015). Financial stability and economic
performance. Economic Modelling, 48, 25-40.
Dearmon, J., Grier, K. (2009). Trust and development. Journal of Economic Behavior
& Organization, 71, 210-220.
Demetriades, P., Law, S.H. (2006). Finance, institutions and economic development.
International Journal of Finance and Economics, 11, 245-260.
Galbraith, J.K., Kum, H. (2005). Estimating the inequality of household income: A
statistical approach to the creation of a dense and consistent global data set.
Review of Income and Wealth, 51(1), 115-143.
Galor, O., Zeira, J. (1993). Income distribution and macroeconomics. Review of
Economics Studies, 60, 35-52.
Gimet, C., Lagoarde-Segot, T. (2011). A close look at financial development and
income distribution. Journal of Banking and Finance, 35, 1698-1713.
Greenwood, J., Jovanovic, B. (1990). Financial development, growth and the
distribution of income. Journal of Political Economy, 98, 1076-1107.
Hamori, S., Hashiguchi, Y. (2012). The effect of financial deepening on inequality:
Some international evidence. Journal of Asian Economics, 23, 353-359.
Herzer, D., Nunnenkamp, P. (2012). The effect of foreign aid on income inequality:
evidence from panel cointegration. Structural Change and Economic Dynamics,
23(3), 245-255.
Huang, H.-C., Lin, S.-C. (2009). Non-linear finance-growth nexus: a threshold with
instrumental variable approach. Economics of Transition, 17(3), 439-466.
Jalil, A. (2012). Modeling income inequality and openness in the framework of
Kuznets curve: new evidence from China. Economic Modelling, 29, 309-315.
Kaufmann, D., Kraay, A., Mastruzzi, M. (2008). Governance matters VII: aggregate
and individual governance indicators, 1996-2007. Policy Research Working Paper
no. 4654, World Bank, Washington D.C.
Kim, D.-H., Lin, S.-C. (2011). Nonlinearity in the financial development-income
inequality nexus. Journal of Comparative Economics, 39, 310-325.
Law, S.H., Azman-Saini, W.N.W., Ibrahim, M.H. (2013). Institutional quality
thresholds and finance-growth nexus. Journal of Banking and Finance, 37, 5373-
5381.
Law, S.H., Singh, N. (2014). Does too much finance harm economic growth?.
Journal of Banking and Finance, 41, 36-44.
Law, S.H., Tan, H.B., Azman-Saini, W.N.W. (2014). Financial development and
income inequality at different levels of institutional quality. Emerging Markets
Finance and Trade, 50, 21-33.
Mokerjee, R., Kalipioni, P. (2010). Availability of financial services and income
inequality: The evidence from many countries. Emerging Markets Review, 11,
404-408.
Mookherjee, D., Ray, D. (2003). Persistent inequality. Review of Economic Studies,
70, 369-312.
Papanek, G.F., Kyn, O. (1986). The effect on income distribution of development,
the growth rate and economic strategy. Journal of Development Economics, 23(1),
55-65.
Perera, L.D.H., Lee, G.H.Y. (2013). Have economic growth and institutional quality
contributed to poverty and inequality reduction in Asia?. Journal of Asian
Economics, 27, 71-86.
Rajan, R., Zingales, L. (2003). The great reversals: the politics of financial
development in the twentieth century. Journal of Financial Economics, 69, 5-50.
Rodriguez-Pose, A., Tselios, V. (2009). Education and income inequality in the
regions of the European Union. Journal of Regional Science, 49, 411-437.
Stiglitz, J. (1988). More instruments and broader goals: moving toward the post-
Washington consensus. WIDER Annual Lecture 2. UNU-WIDER, Helsinki.
Timmer, M.P., de Vries, G. J., de Vries, K. (2014). Patterns of structural change in
developing countries. GGDC Research Memorandum 149.
University of Texas Inequality Project. (2008). Estimated household income
inequality data set 2008. Retrieved from http://utip.gov.utexas.edu/data.html
Yilmazkuday, H. (2011). Thresholds in the finance-growth nexus: a cross-country
analysis. The World Bank Economic Review, 25(2), 278-295.
Published
2018-07-31
How to Cite
Ibrahim, M. (2018). FINANCE AND INEQUALITY IN EIGHT ASIAN COUNTRIES: DOES SIZE MATTER?. Buletin Ekonomi Moneter Dan Perbankan, 21(1), 33-56. https://doi.org/10.21098/bemp.v21i1.930
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Copyright (c) 2018 Mansor Ibrahim
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
