Interactions are investigated between exchange rates and stock prices in the emerging financial markets of India, Korea, Pakistan and the Philippines. The motivation is to establish the causal linkages between leading prices in the foreign exchange market and the stock market; the linkages have implications for the ongoing attempts to develop stock markets in emerging economies simultaneously with a policy shift towards independently floating exchange rates. Some recent econometric techniques are applied to a bivariate vector autoregressive model using monthly observations on the IFC stock price index and the real effective exchange rate over 1985:01-1994:07. The results show unidirectional causality from exchange rates to stock prices in all the sample countries, except the Philippines. This finding has policy implications; it suggests that respective governments should be cautious in their implementation of exchange rate policies, given that such policies have ramifications on their stock markets.
Although theory suggests that financial market imperfections-mainly information asymmetries, market segmentation and transaction costs-prevent poor people from escaping poverty by limiting their access to formal financial services, new financial technologies (FinTech) are seen as key enablers of financial inclusion. Indeed, the UN 2030 Agenda for Sustainable Development (UN-2030-ASD) and the G20 High-Level Principles for Digital Financial Inclusion (G20-HLP-DFI) highlight the importance of harnessing the potential of FinTech to reduce financial exclusion and income inequality. This paper investigates the interrelationship between FinTech, financial inclusion and income inequality for a panel of 140 countries using the Global Findex waves of survey data for 2011, 2014 and 2017. We posit that FinTech affects inequality directly and indirectly through financial inclusion. We invoke quantile regression analysis to investigate whether such effects differ across countries with different levels of income inequality. We uncover new evidence that financial inclusion is a key channel through which FinTech reduces income inequality. We also find that while financial inclusion significantly reduces inequality at all quantiles of the inequality distribution, these effects are primarily associated with higher-income countries. Overall, our results support the aspirations of the UN-2030-ASD and G20-HLP-DFI. Highlights • Harnessing the potential of FinTech to reduce financial exclusion and income inequality has been proposed by the UN and G20. • We posit that FinTech affects income inequality directly and indirectly through financial inclusion. • We invoke quantile regression analysis to investigate whether the effects of FinTech differ across countries with different levels of income inequality. • We find that financial inclusion is a key channel through which FinTech reduces income inequality, at all quantile levels, primarily among higher-income countries.
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