The Relationship of Financial Development and Income Inequality: Panel Causality Approach

Yıl 2020, Cilt: 5 Sayı: 3, 511 - 536, 31.12.2020

Taner Sekmen Seher Gülşah Topuz

https://doi.org/10.30784/epfad.728262

Cited By: 2

Öz

This study examines the causal relationship between financial development and income inequality for developed and developing countries. For this purpose, the relationship between these two variables is revealed by using data of 22 developed and developing countries from 1993 to 2016 and Kónya (2006) panel causality test. Unlike previous studies using traditional panel regression methods, the method of this study allows to obtain country-specific findings. Econometric analyzes are carried out with both the primary financial development index and the eight sub-indexes of financial development. The findings reveal that the relationship between financial development and income inequality is mostly driven by financial development. Moreover, it is concluded that the existence of causality relationship from financial development to income inequality is more common in developing countries than in developed countries. While the development of financial markets in developed countries has a more significant relationship with income inequality than the development of financial institutions, such a difference is not observed in developing countries. Finally, this study clearly shows that the relationship between financial development and income inequality may differ due to country-specific characteristics.

Anahtar Kelimeler

Financial Development, Income Inequality, Panel Causality, Develop and Developing Countries

Finansal Gelişme ve Gelir Eşitsizliği İlişkisi: Panel Nedensellik Yaklaşımı

Öz

Bu çalışma finansal gelişme ile gelir eşitsizliği arasındaki nedensellik ilişkisini gelişmiş ve gelişmekte olan ülkeler için incelemektedir. Bu amaçla bu iki değişken arasındaki ilişki, seçilmiş 22 gelişmiş ve gelişmekte olan ülkenin 1993-2016 dönemini kapsayan veriler ile Kónya (2006) panel nedensellik testi kullanılarak ortaya çıkarılmaya çalışılmaktadır. Geleneksel panel regresyon yöntemlerini kullanan önceki çalışmaların aksine bu çalışmanın yöntemi ülkelere özgü bulguların elde edilmesine imkân vermektedir. Ekonometrik analizler, finansal gelişmeyi temsil etmek amacıyla hem temel finansal gelişme endeksi hem de bu endeksi oluşturan sekiz alt endeks ile yapılmaktadır. Elde edilen bulgular finansal gelişme ve gelir eşitsizliği ilişkisinin büyük oranda finansal gelişme tarafından yönlendirildiğini ortaya koymaktadır. Dahası finansal gelişmeden gelir eşitsizliğine doğru nedensellik ilişkisinin varlığının gelişmekte olan ülkelerde gelişmiş ülkelere göre daha yaygın olduğunu sonucuna varılmaktadır. Gelişmiş ülkelerde finansal piyasaların gelişimi, finansal kurumların gelişimine göre gelir eşitsizliği ile daha fazla anlamlı ilişkiye sahipken gelişmekte olan ülkelerde böylesi bir farklılık gözlemlenmemektedir. Son olarak bu çalışma finansal gelişme ve gelir eşitsizliği ilişkisinin ülkelerin kendine özgü özelliklerden dolayı farklılaşabileceğini açık bir biçimde göstermektedir.

Anahtar Kelimeler

Finansal Gelişme, Gelir Eşitsizliği, Panel Nedensellik, Gelişmiş ve Gelişmekte Olan Ülkeler

Kaynakça

• Adams, S. and Klobodu, E. K. M. (2016). Financial development, control of corruption and income inequality. International Review of Applied Economics, 30(6), 790-808. doi:10.1080/02692171.2016.1208740
• Akıncı, G. Y. ve Akıncı, M. (2016). Ters-U hipotezi bağlamında ekonomik büyüme, finansal kalkınma ve gelir eşitsizliği mekanizmaları üzerine. Finans Politik & Ekonomik Yorumlar, 53(622), 61. Erişim adresi: http://www.ekonomikyorumlar.com.tr
• Ang, J. (2010). Finance and inequality: The case of India. Southern Economic Journal, 76(3). doi:10.4284/sej.2010.76.3.738
• Azam, M. and Raza, S. A. (2018). Financial sector development and income inequality in ASEAN-5 countries: Does financial Kuznets curve exists?. Global Business and Economics Review, 20(1), 88-114. doi:10.1504/GBER.2018.088482
• Baiardi, D. and Morana, C. (2018). Financial development and income distribution inequality in the Euro Area. Economic Modelling, 70, 40-55. https://doi.org/10.1016/j.econmod.2017.10.008
• Banerjee, A. V. and Newman, A. F. (1993). Occupational choice and the process of development. Journal of Political Economy, 101(2), 274-298. Retrieved from http://www.jstor.org/
• Beck, R., Georgiadis, G. and Straub, R. (2014). The finance and growth nexus revisited. Economics Letters, 124(3), 382-385. https://doi.org/10.1016/j.econlet.2014.06.024
• Beck, T., Büyükkarabacak, B., Rioja, F. K. and Valev, N. T. (2012). Who gets the credit? And does it matter? Household vs. firm lending across countries. The BE Journal of Macroeconomics, 12(1), 1-46. https://doi.org/10.1515/1935-1690.2262
• Beck, T., Demirgüç-Kunt, A. and Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1), 27–49. doi:10.1007/s10887-007-9010-6
• Bittencourt, M. (2010). Financial development and inequality: Brazil 1985–1994. Economic Change and Restructuring, 43(2), 113-130. doi:10.1007/s10644-009-9080-x
• Bittencourt, M., Chang, S., Gupta, R. and Miller, S. M. (2019). Does financial development affect income inequality in the US States?. Journal of Policy Modeling, 41(6), 1043-1056. doi:10.1016/j.jpolmod.2019.07.008
• Breitung, J. (2005). A parametric approach to the estimation of cointegration vectors in panel data. Econometric Reviews, 2(2), 151–173. https://doi.org/10.1081/ETC-200067895
• Breusch, T. S. and Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239-253. Retrieved from https://doi.org/10.2307/2297111
• Çetin, M. ve Şeker, F. (2017). Finansal gelişmenin gelir eşitsizliği üzerindeki etkisi: Türkiye ekonomisi için ampirik bir kanıt. International Anatolia Academic Online Journal/Social Science Journal, 3(2), 52-63. Erişim adresi: https://dergipark.org.tr/en/pub/iaaoj/
• Chen, K. C., Wu, L. and Wen, J. (2013). The relationship between finance and growth in China. Global Finance Journal, 24(1), 1-12. doi:10.1016/j.gfj.2013.03.006
• Chong, A. and Gradstein, M. (2007). Inequality and institutions. The Review of Economics and Statistics, 89(3), 454-465. https://doi.org/10.1162/rest.89.3.454
• Clarke, G. R. G, Xu, L. C. and Zou, H. (2006). Finance and income inequality: what do the data tell us?. Southern Economic Journal, 72(3). Retrieved from http://www.jstor.org/
• De Haan, J., Pleninger, R. and Sturm, J. E. (2017). Does the impact of financial liberalization on income inequality depend on financial development? Some new evidence. Applied Economics Letters, 25(5), 313–316. https://doi.org/10.1080/13504851.2017.1319554
• Federici, D. and Caprioli, F. (2009). Financial development and growth: An empirical analysis. Economic Modelling, 26(2), 285-294. https://doi.org/10.1016/j.econmod.2008.07.006
• Galor, O. and Zeira, J. (1993). Income distribution and macroeconomics. The Review of Economic Studies, 60(1), 35-52. https://doi.org/10.2307/2297811
• Greenwood, J. and Jovanovich, B. (1990). Financial development, growth and the distribution of income. Journal of Political Economy, 98(5, Part 1), 1076–1107. Retrieved from http://www.jstor.org/
• Jalilian, H. and Kirkpatrick, C. (2002). Financial development and poverty reduction in developing countries. International Journal of Finance and Economics, 7(2), 97-108. doi:10.1002/ijfe.179
• Jalilian, H. and Kirkpatrick, C. (2005). Does financial development contribute to poverty reduction?. The Journal of Development Studies, 41(4), 636-656. https://doi.org/10.1080/00220380500092754
• Jauch, S. and Watzka, S. (2016). Financial development and income inequality: A panel data approach. Empirical Economics, 51(1), 291-314. https://doi.org/10.1007/s00181-015-1008-x
• Kappel, V. (2010). The effects of financial development on income inequality and poverty. (CER-ETHCenter of Economic Research at ETH Zurich, Working Paper No. 10/127). http://dx.doi.org/10.2139/ssrn.1585148
• Kar, M., Nazlıoğlu, Ş. and Ağır, H. (2011). Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis. Economic modelling, 28(1-2), 685- 693. https://doi.org/10.1016/j.econmod.2010.05.015
• King, R. G. and Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717-737. doi:10.2307/2118406
• Kónya, L. (2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978–992. https://doi.org/10.1016/j.econmod.2006.04.008
• Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1), 1- 28. Retrieved from http://www.jstor.org/
• Law, S. H., Tan, H. B. and Azman-Saini, W. N. W. (2014). Financial development and income inequality at different levels of institutional quality. Emerging Markets Finance & Trade, (50), 21-33. https://doi.org/10.2753/REE1540-496X5001S102
• Levine, R. (1997). Financial development and economic growth: Views and Agenda. Journal of Economic Literature, 35, 688-726. Retrieved from http://www.jstor.org/
• Levine, R. (2005). Finance and growth: theory and evidence. Handbook of Economic Growth, 1, 865-934. https://doi.org/10.1016/S1574-0684(05)01012-9
• Li, H., Squire, L. and H. Zou (1998). Explaining international and intertemporal variations in income distribution. The Economic Journal, 108, 26-43. https://doi.org/10.1111/1468-0297.00271
• McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution: Washington.
• Meniago, C. and Asongu, S. A. (2018). Revisiting the finance-inequality nexus in a panel of African countries. Research in International Business and Finance, 46, 399-419. https://doi.org/10.1016/j.ribaf.2018.04.012
• Mookerjee, R. and Kalipioni, P. (2010). Availability of financial services and income inequality: The evidence from many countries. Emerging Markets Review, 11(4), 404-408. https://doi.org/10.1016/j.ememar.2010.07.001
• Naceur, S. B. and Ghazouani, S. (2007). Stock markets, banks, and economic growth: Empirical evidence from the MENA region. Research in International Business and Finance, 21(2), 297-315. https://doi.org/10.1016/j.ribaf.2006.05.002
• Naceur, S.B. and Zhang, R. (2016). Financial development, inequality and poverty: some international evidence (IMF Working Paper, No. 16/32). Retrieved from https://www.mfw4a.org/sites/default/files/resources/Financial_Development_Inequality_and_Pove rty_Some_International_Evidence.pdf
• Narayan, P. K. and Narayan, S. (2013). The short-run relationship between the financial system and economic growth: New evidence from regional panels. International Review of Financial Analysis, 29, 70-78. https://doi.org/10.1016/j.irfa.2013.03.012
• Nikoloski, Z. (2013). Financial sector development and inequality: Is there a financial Kuznets curve?. Journal of International Development, 25(7), 897-911. https://doi.org/10.1002/jid.2843
• Nili, M. and Rastad, M. (2007). Addressing the growth failure of the oil economies: The role of financial development. The Quarterly Review of Economics and Finance, 46(5), 726-740. doi:10.1016/j.qref.2006.08.007
• Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels (CESifo Working Paper, No. 1229). https://doi.org/10.1007/s00181-020-01875-7
• Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panel with a multifactor error structure. Econometrica, 74(4), 967–1012. https://doi.org/10.1111/j.1468-0262.2006.00692.x
• Pesaran, M. H., Ullah, A. and Yamagata, T. A. (2008). A bias-adjusted LM test of error cross-section independence. Econometrics Journal, 11(1), 105-127. https://doi.org/10.1111/j.1368- 423X.2007.00227.x
• Qian, R., Reinhart, C. M. and Rogoff, K. (2011). On graduation from default, inflation, and banking crises: elusive or illusion?. NBER Macroeconomics Annual, 25(1), 1-36. doi:10.3386/w16168
• Rajan, R. G. (2006). Has finance made the world riskier?. European Financial Management, 12(4), 499- 533. https://doi.org/10.1111/j.1468-036X.2006.00330.x
• Rioja, F. and Valev, N. (2004). Does one size fit all?. A reexamination of the finance and growth relationship. Journal of Development Economics, 74(2), 429-447. https://doi.org/10.1016/j.jdeveco.2003.06.006
• Şahin, D. (2018). Gelişmiş ülkelerde finansal gelişme ve gelir eşitsizliği ilişkisi. Iğdır Üniversitesi Sosyal Bilimler Dergisi, 15, 299-322. Erişim adresi: http://sosbilder.igdir.edu.tr/
• Samargandi, N., Fidrmuc, J. and Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68, 66-81. doi:10.1016/j.worlddev.2014.11.010
• Seven, U. and Coskun, Y. (2016). Does financial development reduce income inequality and poverty? Evidence from emerging countries. Emerging Markets Review, 26, 34-63. doi:10.1016/j.ememar.2016.02.002
• Shaw, E. S. (1973). Financial Deepening in economic development. New York: Oxford University Press.
• Shen, C. H. and Lee, C. C. (2006). Same financial development yet different economic growth: Why?. Journal of Money, Credit and Banking, 38(7), 1907-1944. Retrieved from http://www.jstor.org/
• Solt, F. (2009). Standardizing the world income inequality database. Social Science Quarterly, 90(2), 231-242. https://doi.org/10.1111/j.1540-6237.2009.00614.x
• Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Paper No. 16/5). Retrieved from https://www.elibrary.imf.org/view/IMF001/23127- 9781513583709/23127-9781513583709/23127- 9781513583709_A001.xml?language=en&redirect=true
• Tan, H. B. and Law, S. H. (2012). Nonlinear dynamics of the finance-inequality nexus in developing countries. The Journal of Economic Inequality, 10(4), 551-563. https://doi.org/10.1007/s10888- 011-9174-3
• Tita, A. F. and Aziakpono, M. J. (2016). Financial development and income inequality in Africa: A panel heterogeneous approach. (Cape Town: ERSA Working Paper No. 614). Retrieved from https://www.econrsa.org/system/files/publications/working_papers/working_paper_614.pdf
• Topuz, S. G. ve Dağdemir, Ö. (2016). Finansal gelişme ve gelir eşitsizliği: bir panel veri analizi. Anadolu Üniversitesi Sosyal Bilimler Dergisi, 16(3), 19-34. https://doi.org/10.18037/ausbd.390325
• Uddin, G. S., Shahbaz, M., Arouri, M. and Teulon, F. (2014). Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh. Economic Modelling, 36, 405-412. doi:10.1016/j.econmod.2013.09.049
• Younsi, M. and Bechtini, M. (2018). Economic growth, financial development and income inequality in BRICS countries: Evidence from Panel Granger Causality Tests (No. 85182). doi:10.1007/s13132-018-0569-2
• Zellner, A. (1962). An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 57, 348–368. Retrieved from http://www.jstor.org/