The income inequality, financial depth and economic growth nexus in China

Abstract

Income inequality has increased in China despite rapid economic growth. Income inequality could impinge on future development, leading to social tension or political instability. Our study investigates the short‐run and long‐run relationship between three important macroeconomic indicators—income inequality, economic growth and financial depth. We utilise a two‐step procedure of ARDL bounds and Granger causality for the analysis. The bounds test indicates the presence of a cointegrating relationship between income inequality, financial depth and economic growth in the long run. In the second step, we utilise the Granger causality approach. Results show a bidirectional causality between financial depth‐growth and a unidirectional causality between inequality‐growth in the short run. In the long run, results reveal that growth and financial depth determine Gini. Our findings provide support for the inequality‐widening effect due to economic growth and higher credit provided to the private sector. We find no evidence of inequality‐narrowing or income‐equalising effect in the long run for the period of study. It is possible that the government's inclusive growth policies which started less than a decade ago have not taken effect for us to capture the inverted U‐shape income equalising effect significantly.

Linkage between Financial Development and Income Inequality in India

“…Based on the outcomes, it can be interpreted that a 1% surge in GDP per capita increases income inequality by 0.154%. This nding is in line with Berisha et al (2019), Koh et al (2020),…”

“…and other nancial services are enjoyed by the wealthy strata of the society. These results are consistent with the ndings of existing literature Jauch and Watzka (2016), Koh et al (2020), Sehrawat and Giri (2015) and Seven and Coskun (2016) but contradictory with the ndings of Kapingura (2017) and Omarand Inaba (2020) who report that access to nancial services and strong nancial inclusion alleviate income inequality signi cantly. To capture the nonlinearities, if any, and to explore thse presence of the GJ hypothesis (1990), the squared term of nancial development (FD 2 ) is used in the Eq.…”

Nexus Between Financial Development and Income Inequality Before Pandemic Covid-19: Does Financial Kuznets Curve Exist in Malaysia, Indonesia, Thailand and Philippines?

“…Thus, society has more options for the occupational decision that can encourage an increase in income distribution, and as a result, decline the income inequality. Besides, Koh et al (2019) described that well-developed financial sectors lead to an inequality-narrowing effect in the long-run through the easiness of firms to access capital, which an essential input to increase the companies' productivity and performance. Consequently, the advantages trickled down to society through the creation of jobs and which reduce unemployment.…”

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“…In contrast to these studies, research by Dabla-Norris et al (2015) and De Haan and Sturm (2017) shows that financial development increases inequality. Evidence from China is equally mixed, with some studies finding a negative relationship between finance and inequality (Jalil and Feridun 2011); others an inverted-U relationship (Zhang and Chen 2015); and yet others a positive relationship (Koh, Lee, and Bomhoff 2020).…”