Financial Sector Development and Inequality: Is There a Financial Kuznets Curve?

Abstract

The existing empirical knowledge in the area of financial sector development and income inequality finds evidence for the theoretical work which posits a simple, linear relationship between the two variables. In this article, we subject the extant empirical knowledge to close scrutiny and point out to a potential dynamic and endogenous relationship between financial sector development and inequality. By using dynamic multivariate panel data analysis on a carefully selected data set of income inequality data for developed and developing countries spanning the period 1962–2006, we find robust empirical evidence for the existence of an inverted U‐curve relationship between financial sector development and income inequality. In that token, we confirm the theoretical stipulations of Greenwood and Jovanovic (1990) for an inverted U‐curve relationship between the financial sector and income inequality. Copyright © 2012 John Wiley & Sons, Ltd.

Rethinking the financial Kuznets curve in the framework of income inequality: Empirical evidence on advanced and developing economies

“…Third, Nikoloski (2012) finds that there is an inverted U-curve relationship between financial sector development and income inequality which confirm the theoretical stipulations of Greenwood and Jovanovic (1990). However, the same mistake is done by Nikoloski (2012) in the empirical analysis since the financial sector development is only measured by the credit to private sector and thus overlooks the other critical determinants such as financial system deposits (% of GDP) or bank deposits (% of GDP). There is a potential that Nikoloski (2012)'s inverted U-shaped results may turn into U-curve relations through using these variables.…”

The Impact of Financial Crises on the Poor

“…Further evidence, byNikoloski (2013), shows that a financial Kuznets curve may exist, where increasing financial sector development may initially lead to higher rates of inequality before eventually falling.…”

Desarrollo financiero y desigualdad del ingreso, el caso de América Latina.

“…En otras palabras, los resultados empíricos obtenidos rechazan las predicciones de las teorías de Galor y Zeira (1993) y Banerjee y Newman (1993). Por tanto, los resultados obtenidos están en línea con los obtenidos por Nikoloski (2012), los cuales indican que el desarrollo del sistema financiero incrementa la desigualdad del ingreso. Otros trabajos que concluyen que el desarrollo del sistema financiero tiene una relación positiva con la desigualdad del ingreso son los de Jauch y Watzka (2015), Seven y Coskun (2016), De Haan y Sturm (2017) entre los más recientes.…”