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A closer look at financial development and income distribution

Abstract : This paper analyzes the under-investigated relationship uniting financial development and income distribution. We use a novel approach taking into account for the first time the specific channels linking banks, capital markets and income inequality, the time-varying nature of the relationship, and reciprocal causality. We construct a set of annual indicators of banking and capital market size, robustness, efficiency and international integration. We then estimate the determinants of income distribution using a panel Bayesian structural vector autoregressive (SVAR) model, for a set of 49 countries over the 1994-2002 period. We uncover a significant causality running from financial sector development to income distribution. In addition, the banking sector seems to exert a stronger impact on inequality. Finally, the relationship appears to depend on characteristics of the financial sector, rather than on its size.
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Submitted on : Wednesday, February 9, 2011 - 3:02:16 PM
Last modification on : Wednesday, August 5, 2020 - 3:11:33 AM
Long-term archiving on: : Tuesday, May 10, 2011 - 3:06:20 AM


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  • HAL Id : halshs-00564641, version 1


Céline Gimet, Thomas Lagoarde-Segot. A closer look at financial development and income distribution. Journal of Banking and Finance, Elsevier, 2011, 35 (7), pp. 1698-1713. ⟨halshs-00564641⟩



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