REINVESTIGATION OF THE RELATIONSHIP BETWEEN INEQUALITY AND BANK-BASED FINANCIAL SYSTEM
Journal Title: Academic Research International - Year 2018, Vol 9, Issue 3
Abstract
This paper assesses the theoretical underpinnings and associated empirical findings of the non-linearity relationship between financial development and inequality by re-examining the results reported in one of the prominent studies in the literature. In contrast to the joint determinations of financial development and inequality, we implement a novel partially linear model to assess the impact of financial development on inequality. We further conduct our own analyses of 1,913 observations of pooled 64 countries over the period 1970-2011. An empirical application suggests that there is dramatic evidence of nonlinearity and there exists a U relation between inequality and bank-based financial system. The U-shaped model suggests that countries choosing to financial development experience a decrease in inequality up to a point, but then can take disadvantage of net benefits after that. Thus, it allows us to unravel the possible directions of non-linearity between the financial development and inequality and to help us shape future policy-oriented research, and to influence the priority that policy makers attach to reforming financial sector policies.
Authors and Affiliations
Chih-Chuan Yeh
Keywords
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