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Investigating the Relationship Between Financial Development and Income Inequality in Developed and Developing Countries: An Application of Canonical Correlation Analysis

Year 2023, Issue: 38, 35 - 52, 28.07.2023
https://doi.org/10.26650/ekoist.2023.38.1109201

Abstract

This paper investigates the relationship between the variables of financial development and income inequality using a canonical correlation analysis for 41 developed and developing countries in 2017. Financial develop consists of the four subdimensions of access to finance, efficiency, stability, and external liberalization, which are respectively explained by the number of ATMs per 100,000 adults, net interest margin, ratio of regulatory capital to risk-weighted assets, and ratio of consolidated foreign claims of BIS (Bank for International Settlements) Reporting Banks to GDP. Meanwhile, income inequality consists of the variables of Gini coefficient and poverty gap index. As a result of the canonical correlation analysis, a highly correlated relationship was found between financial development and income inequality, with the common variance shared among the data being 45%. To test the reliability of this result, Mardia’s multivariate normal distribution test was applied, and the dataset of the variables was determined to not be normally distributed. Therefore, the study only considered structural correlations. As a result of the structural correlations, the Gini coefficient’s contributions to the income inequality dataset can be said to be more significant than what the poverty gap index contributes. Net interest margin explains the subdimension of financial efficiency, and its contribution was observed to be more important than the other proxy measurements that express access to the subdimensions of finance, stability, and external liberalization. Therefore, positive developments in the net interest margin will be able to positively affect financial development thus increasing the income of the poor and the use of economic opportunities, as well as narrowing income inequality in both developed and developing countries.

References

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  • Angori, G., Aristei, D., Gallo, M. (2019). Determinants of Banks’ Net Interest Margin: Evidence from the Euro Area during the Crisis and Post-Crisis Period. Sustainability, 11(14), 3785. D0I:10.3390/su11143785 google scholar
  • Banerjee, A. V., Newman, A. F. (1993). 0ccupational Choice and the Process of Development. Journal of Political Economy, 101(2), 274-298. D0I:10.1086/261876. google scholar
  • Bektaş, H., Tekin, M. (2013). The Relationship of Financial Ratios and Stock Exchange Performance Ratios: Canonical Correlation Analysis of Banks Trading in Istanbul Stock Exchange. Marmara University Journal of I.I.B, 34(I), 317-329. https://dergipark.org.tr/en/download/article-file/3863 google scholar
  • Bittencourt, M., Chang, S., Gupta, R., Miller, S. (2019). Does Financial Development Affect Income Inequality in the U.S. States?. Journal of Policy Modeling, 41(6), 1043-1056. https:// doi.org/10.1016/j.jpolmod.2019.07.008 google scholar
  • Chiu, Y.B., Lee, C.C. (2019). Financial Development, Income Inequality, and Country Risk. Journal of International Money and Finance, 93(1), 1-18. DOI: 10.1016/j.jimonfin.2019.01.001. google scholar
  • Chung, P.K., Zhao, Y., Liu, J.D., Quach, B. (2017). A Canonical Correlation Analysis On The Relationship Between Functional Fitness And Health-Related Quality Of Life İn Older Adults. Archives of Gerontology and Geriatrics, 68, 44-48. https://doi.org/10.1016/j.archger.2016.08.007 google scholar
  • De Gregorio, J. (1996). Borrowing Constraints, Human Capital Accumulation and Growth. Journal of Monetary Economics, 37(1), 49-71. https://doi.org/10.1016/0304- 3932(95)01234-6 google scholar
  • Fornell, C., Larcker, D. F. (1980). The Use of Canonical Correlation Analysis in Accounting Research. The Journal of Business Finance and Accounting, 7(3), 455-470. DOI: 10.1111/ j.1468-5957.1980.tb00213.x google scholar
  • Galor, O., Zeira, J. (1993). Income Distribution and Macroeconomics. The Review of Economic Studies, 60(1), 35-52. https://doi.org/10.2307/2297811 google scholar
  • Greenwood, J., Jovanovic, B. (1990). Financial Development, Growth, and the Distribution of Income. The Journal of Political Economy, 98(5), 1076-1107. http://piketty.pse.ens.fr/files/ GreenwoodJovanovicJPE1990.pdf google scholar
  • Güler, E.Ö., Şanlı, S. (2019). A Comparison of Canonical Correlation Analysis Results on 20152016 Social Progress Indexes. Ankara Hacı Bayram Veli Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 21(2), 185-204. https://dergipark.org.tr/tr/download/article-file/792408 google scholar
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  • Hotelling, H. (1936). Relations Between Two Sets of Variates. Biometrika, 283(4), 321-377.DOI: 10.1093/biomet/28.3-4.321 google scholar
  • Jauch, S., Watzka, S. (2015). Financial Development and Income Inequality: A Panel Data Approach. EmpiricalEconomics, 51 (1), 291-314. D01:10.1007/s00181-015-1008-x google scholar
  • Johnson, R.A., Wichern, D.W. (2007). Applied Multivariate Statistical Analysis. 6th Edition, Pearson Prentice Hall, Upper Saddle River. google scholar
  • Kappel, V. (2010). The Effects of Financial Development on Income Inequality and Poverty, Center of Economic Research at ETH Zurich Working Paper, 10/127, 1-40. https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1585148 google scholar
  • Lee, H.S. (2007). Canonical Correlation Analysis Using Small Number of Samples. Communications in Statistics. Simulation and Computation, 36(5), 973- 985. D0I:10.1080/03610910701539443 google scholar
  • Naceur, B.S., Zhang, R. (2016). Financial Development, Inequality and Poverty. IMF Working Paper, 1-28. https://www.imf.org/external/pubs/ft/wp/2016/wp1632.pdf. google scholar
  • Nurkovic, N., Imamovic, D., Ecin Mirvic, T. (2021). The Canonical Connection of Motor Skills and Performance of Technical Elements of Goal Shooting in Water Polo. Sportski Logos, 34-37. https:// www.researchgate.net/profile/Indira-Mahmutovic/publication/357743975_DIFFERENCES_ IN_STUDENTS_’ATTITUDES_T0_PHYSICAL_ACTIVITY_AND_SATISFACTI0N_ WITH_HEALTH_STATUS/links/61dd7ae34e4aff4a643479e7/DIFFERENCES-IN-STUDENTS-ATTITUDES-T0-PHYSICAL-ACTIVITY-AND-SATISFACTI0N-WITH-HEALTH-STATUS.pdf#page=36 google scholar
  • 0dhiambo, N.M. (2020). Financial Development, Income Inequality and Carbon Emissions in Sub-Saharan African Countries: A Panel Data Analysis. Energy Exploration & Exploitation, 38(5), 1914-1931. D0I: 10.1177/0144598720941999 google scholar
  • Oktay E., Kaynak S. (2007). Türkiye ve Avrupa Birliği Ülkelerinin Bilgi Ekonomisi Girdi Ve Çıktı Değişkenleri Arasındaki Kanonik İlişkinin Araştırılması. Atatürk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 10(2), 419-440. http://static.dergipark.org.tr/articledownload/ imported/1020000451/1020000445.pdf? google scholar
  • Park, D., Shin, K. (2017). EconomicGrowth, FinancialDevelopment, andIncomeInequality, Emerging Markets Finance and Trade, 53(12), 2794- 2825. DOI: 10.1080/1540496X.2017.1333958. google scholar
  • Perugini, C., Tekin, P. (2020). Financial Development, Income Inequality and Governance Institutions. Panoeconomicus, 69(1). http://www.panoeconomicus.org/index.php/jorunal/ article/view/937/582 google scholar
  • Sharma, S. (1996). Applied Multivariate Techniques, New York: John Wiley & Sons. google scholar
  • Sherry, A., Henson, R.K. (2005). Conducting and Interpreting Canonical Correlation Analysis in Personality Research: A User-Friendly Primer. Journal of Personality Assessment, 84(1), 37-48. DOI: 10.1207/s15327752jpa8401_09 google scholar
  • Statheropoulos, M., Vassiliadis Al, N., Pappa Al, A. (1998). Principal Component and Canonical Correlation Analysis for Examining Air Pollution and Meteorological Data, Atmospheric Environment, 32(6), 1087-1095. https://doi.org/10.1016/S1352-2310(97)00377-4 google scholar
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Finansal Gelişme ve Gelir Eşitsizliği Arasındaki İlişkinin Gelişmiş ve Gelişmekte Olan Ülkeler İçin Araştırılması: Kanonik Korelasyon Analizi Uygulaması

Year 2023, Issue: 38, 35 - 52, 28.07.2023
https://doi.org/10.26650/ekoist.2023.38.1109201

Abstract

Bu çalışmada, Finansal Gelişme ile Gelir Eşitsizliği arasındaki ilişki Kanonik Korelasyon Analizi kullanılarak araştırılmıştır. Gelişmiş ve gelişmekte olan 41 ülke için yapılan çalışmada Finansal Gelişme değişken seti finansal erişim, finansal verimlilik, finansal istikrar ve dışsal serbestleşme’den oluşan dört farklı boyut ile açıklanmıştır. Bu boyutlar ise sırasıyla “100.000 Kişi Başına Düşen ATM Sayısı, Net Faiz Marjı, Düzenleyici Sermayenin Risk Ağırlıklı Varlıklara Oranı ve BIS Raporlama Yapan Bankaların Konsolide Dış Alacaklarının GSYİH’ya Oranı” değişkenleri ile tanımlanmıştır. Gelir Eşitsizliği değişken seti ise, Gini Katsayısı ve Yoksulluk Açığı Endeksi (günde 3,20 ABD Doları) değişkenlerinden oluşmuştur. 2017 yılı verileri kullanılarak yapılan Kanonik Korelasyon analizi sonucunda, Finansal Gelişme ve Gelir Eşitsizliği değişken setleri arasında yüksek düzeyde ilişki olduğu saptanmıştır. Bu sonucun güvenilirliğinin test edilmesi için Mardia Çok Değişkenli Normal Dağılım testi uygulanmış ve değişkenlere ait veri setinin normal dağılmadığı saptanmıştır. Bu nedenle çalışmada sadece yapısal korelasyonlar dikkate alınmıştır. Yapısal korelasyon sonucunda ise, Gini Katsayısı'nın Gelir Eşitsizliği veri setine katkısının Yoksulluk Açığı Endeksi'nin katkısından daha önemli olduğu; ayrıca finansal etkinlik boyutunu temsil eden Net Faiz Marjı'nın katkısının, finansal erişim, finansal istikrar ve dış serbestleşme boyutlarını ifade eden diğer değişkenlere göre Finansal Gelişime değişken seti için daha önemli olduğu sonucuna ulaşılmıştır. Elde edilen tüm bu sonuçlar birlikte değerlendirildiğinde, özellikle Net Faiz Marjı değişkeninde meydana gelecek olumlu gelişmelerin finansal gelişmeyi hızlandırarak yoksulların gelirlerini arttırabileceğini, ekonomik fırsatların daha fazla kullanılabileceğini ve gelir dağılımını sıkılaştırarak gelir eşitsizliğinin ortadan kaldırılmasına katkı sunabileceğini göstermiştir.

References

  • Albayrak, A.S. (2006). Uygulamalı Çok Değişkenli İstatistik Teknikleri, Ankara: Asil Yayın Dağıtım. google scholar
  • Arora, R. U. (2011). Finance and Inequality: A Study of Indian States. Applied Economics, 44(34), 4527-4538. D01:10.1080/00036846.2011.597736 google scholar
  • Angori, G., Aristei, D., Gallo, M. (2019). Determinants of Banks’ Net Interest Margin: Evidence from the Euro Area during the Crisis and Post-Crisis Period. Sustainability, 11(14), 3785. D0I:10.3390/su11143785 google scholar
  • Banerjee, A. V., Newman, A. F. (1993). 0ccupational Choice and the Process of Development. Journal of Political Economy, 101(2), 274-298. D0I:10.1086/261876. google scholar
  • Bektaş, H., Tekin, M. (2013). The Relationship of Financial Ratios and Stock Exchange Performance Ratios: Canonical Correlation Analysis of Banks Trading in Istanbul Stock Exchange. Marmara University Journal of I.I.B, 34(I), 317-329. https://dergipark.org.tr/en/download/article-file/3863 google scholar
  • Bittencourt, M., Chang, S., Gupta, R., Miller, S. (2019). Does Financial Development Affect Income Inequality in the U.S. States?. Journal of Policy Modeling, 41(6), 1043-1056. https:// doi.org/10.1016/j.jpolmod.2019.07.008 google scholar
  • Chiu, Y.B., Lee, C.C. (2019). Financial Development, Income Inequality, and Country Risk. Journal of International Money and Finance, 93(1), 1-18. DOI: 10.1016/j.jimonfin.2019.01.001. google scholar
  • Chung, P.K., Zhao, Y., Liu, J.D., Quach, B. (2017). A Canonical Correlation Analysis On The Relationship Between Functional Fitness And Health-Related Quality Of Life İn Older Adults. Archives of Gerontology and Geriatrics, 68, 44-48. https://doi.org/10.1016/j.archger.2016.08.007 google scholar
  • De Gregorio, J. (1996). Borrowing Constraints, Human Capital Accumulation and Growth. Journal of Monetary Economics, 37(1), 49-71. https://doi.org/10.1016/0304- 3932(95)01234-6 google scholar
  • Fornell, C., Larcker, D. F. (1980). The Use of Canonical Correlation Analysis in Accounting Research. The Journal of Business Finance and Accounting, 7(3), 455-470. DOI: 10.1111/ j.1468-5957.1980.tb00213.x google scholar
  • Galor, O., Zeira, J. (1993). Income Distribution and Macroeconomics. The Review of Economic Studies, 60(1), 35-52. https://doi.org/10.2307/2297811 google scholar
  • Greenwood, J., Jovanovic, B. (1990). Financial Development, Growth, and the Distribution of Income. The Journal of Political Economy, 98(5), 1076-1107. http://piketty.pse.ens.fr/files/ GreenwoodJovanovicJPE1990.pdf google scholar
  • Güler, E.Ö., Şanlı, S. (2019). A Comparison of Canonical Correlation Analysis Results on 20152016 Social Progress Indexes. Ankara Hacı Bayram Veli Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 21(2), 185-204. https://dergipark.org.tr/tr/download/article-file/792408 google scholar
  • Hair, F. J., Black, W.C., Babin, B.J., Anderson, R.E. (1998). Multivariate Data Analysis, London: Prentice-Hall International Inc. google scholar
  • Hotelling, H. (1936). Relations Between Two Sets of Variates. Biometrika, 283(4), 321-377.DOI: 10.1093/biomet/28.3-4.321 google scholar
  • Jauch, S., Watzka, S. (2015). Financial Development and Income Inequality: A Panel Data Approach. EmpiricalEconomics, 51 (1), 291-314. D01:10.1007/s00181-015-1008-x google scholar
  • Johnson, R.A., Wichern, D.W. (2007). Applied Multivariate Statistical Analysis. 6th Edition, Pearson Prentice Hall, Upper Saddle River. google scholar
  • Kappel, V. (2010). The Effects of Financial Development on Income Inequality and Poverty, Center of Economic Research at ETH Zurich Working Paper, 10/127, 1-40. https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1585148 google scholar
  • Lee, H.S. (2007). Canonical Correlation Analysis Using Small Number of Samples. Communications in Statistics. Simulation and Computation, 36(5), 973- 985. D0I:10.1080/03610910701539443 google scholar
  • Naceur, B.S., Zhang, R. (2016). Financial Development, Inequality and Poverty. IMF Working Paper, 1-28. https://www.imf.org/external/pubs/ft/wp/2016/wp1632.pdf. google scholar
  • Nurkovic, N., Imamovic, D., Ecin Mirvic, T. (2021). The Canonical Connection of Motor Skills and Performance of Technical Elements of Goal Shooting in Water Polo. Sportski Logos, 34-37. https:// www.researchgate.net/profile/Indira-Mahmutovic/publication/357743975_DIFFERENCES_ IN_STUDENTS_’ATTITUDES_T0_PHYSICAL_ACTIVITY_AND_SATISFACTI0N_ WITH_HEALTH_STATUS/links/61dd7ae34e4aff4a643479e7/DIFFERENCES-IN-STUDENTS-ATTITUDES-T0-PHYSICAL-ACTIVITY-AND-SATISFACTI0N-WITH-HEALTH-STATUS.pdf#page=36 google scholar
  • 0dhiambo, N.M. (2020). Financial Development, Income Inequality and Carbon Emissions in Sub-Saharan African Countries: A Panel Data Analysis. Energy Exploration & Exploitation, 38(5), 1914-1931. D0I: 10.1177/0144598720941999 google scholar
  • Oktay E., Kaynak S. (2007). Türkiye ve Avrupa Birliği Ülkelerinin Bilgi Ekonomisi Girdi Ve Çıktı Değişkenleri Arasındaki Kanonik İlişkinin Araştırılması. Atatürk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 10(2), 419-440. http://static.dergipark.org.tr/articledownload/ imported/1020000451/1020000445.pdf? google scholar
  • Park, D., Shin, K. (2017). EconomicGrowth, FinancialDevelopment, andIncomeInequality, Emerging Markets Finance and Trade, 53(12), 2794- 2825. DOI: 10.1080/1540496X.2017.1333958. google scholar
  • Perugini, C., Tekin, P. (2020). Financial Development, Income Inequality and Governance Institutions. Panoeconomicus, 69(1). http://www.panoeconomicus.org/index.php/jorunal/ article/view/937/582 google scholar
  • Sharma, S. (1996). Applied Multivariate Techniques, New York: John Wiley & Sons. google scholar
  • Sherry, A., Henson, R.K. (2005). Conducting and Interpreting Canonical Correlation Analysis in Personality Research: A User-Friendly Primer. Journal of Personality Assessment, 84(1), 37-48. DOI: 10.1207/s15327752jpa8401_09 google scholar
  • Statheropoulos, M., Vassiliadis Al, N., Pappa Al, A. (1998). Principal Component and Canonical Correlation Analysis for Examining Air Pollution and Meteorological Data, Atmospheric Environment, 32(6), 1087-1095. https://doi.org/10.1016/S1352-2310(97)00377-4 google scholar
  • Tacq, J. (1997). Multivariate Analysis Techniques in Social Science Research: From Problem to Analysis, Rotterdam: Sage Publications Ltd. google scholar
  • Thompson, B. (1984). Canonical Correlation Analysis: Uses and Interpretation (Quantitative Applications in the Social Sciences), California: Sage Publications, Inc. google scholar
  • Ünlükaptan İ. (2009). Avrupa Birliği Üyesi Ülkelerde İktisadi Kalkınma, Rekabetçilik ve İnovasyon İlişkilerinin Kanonik Korelasyon Analizi ile Belirlenmesi. Maliye Dergisi, 157, 235-250. https:// ms.hmb.gov.tr/uploads/2019/09/15.%C4%B0lter.UNLUKAPLAN.pdf google scholar
  • Zungu, L.T., Grelying, L. (2021). Financial Development and Income Inequality: A Nonlinear Econometric Analysis of 21 African Countries, 1994-2015, Economic Research google scholar
There are 32 citations in total.

Details

Primary Language Turkish
Subjects Econometrics (Other)
Journal Section RESEARCH ARTICLE
Authors

Çiğdem Yılmaz Özsoy 0000-0002-7436-7273

Publication Date July 28, 2023
Submission Date April 26, 2022
Published in Issue Year 2023 Issue: 38

Cite

APA Yılmaz Özsoy, Ç. (2023). Finansal Gelişme ve Gelir Eşitsizliği Arasındaki İlişkinin Gelişmiş ve Gelişmekte Olan Ülkeler İçin Araştırılması: Kanonik Korelasyon Analizi Uygulaması. EKOIST Journal of Econometrics and Statistics(38), 35-52. https://doi.org/10.26650/ekoist.2023.38.1109201