World Interest Rates and Inequality: Insight From the Galor–zeira Model

Battisti, Michèle; Fioroni, Tamara; Lavezzi, Andrea Mario

doi:10.1017/s1365100518000652

Cited by 4 publications

(6 citation statements)

References 55 publications

(52 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The previous econometric evidence, especially using earlier data periods, also corresponded rather well with these predictions (see, for example, Levine 2005;Clarke et al 2006;Beck et al 2007;Kim and Lin 2011). Recently, contrary empirical findings have started to accumulate evidence that a larger financial deepening may actually have increased inequality instead of reducing it (see, for example, Claessens and Perotti 2007;Kunieda et al 2014;Denk and Cournede 2015;Haan and Sturm 2016;Jauch and Watzka 2016;Battisti et al 2018;Brei et al 2018), which is especially striking in developed economies where the downwards sloping part is expected according to the earlier predictions.…”

Section: Introductionsupporting

confidence: 54%

“…It is also the decisive factor in assessing whether an economy is dynamically efficient or inefficient (Abel et al 1989). Relying on Galor and Zeira (1993), Battisti et al (2018) also show empirically that the level of (world) interest rates itself might be an important state-determining factor for inequality. However, to our knowledge, the importance of r − g for income inequality due to its interaction with the degree of financial deepening has not been previously explored.…”

Section: Introductionmentioning

confidence: 91%

“…Some additional instrumental variables will be employed in the robustness analysis including the legal origin, latitude, the political risk index of the International Country Risk Guide (ICRG), the durability of the stable period without severe political turmoils/changes, the share of foreign banks among total banks, and the real interest rate of US as a (good) proxy of world interest rate (see Battisti et al 2018).…”

Section: Datamentioning

confidence: 99%

“…Next, Table D10 addresses the potential endogeneity issue using the following set of regular instruments. Besides the usual time-invariant characteristics representing the historical tradition (five dummies of British, French, German, Scandinavian, and Socialist legal origin) and the geographical positioning (latitude), we include further the political risk index of the International Country Risk Guide (ICRG), the (logarithm of) durability of the stable period without severe political turmoils/changes, the share of foreign banks among total banks, and, motivated by Battisti et al (2018), the US real interest rate. In order to avoid potential repercussions, we drop the US from the OECD estimation sample (and it is absent from the EU sample by the definition).…”

Section: Some Further Checksmentioning

confidence: 99%

See 3 more Smart Citations

Nonlinear impact of financial deepening on income inequality

Benczúr

Kvedaras

2020

Empir Econ

View full text Add to dashboard Cite

This paper looks at the influence of financial deepening (private bank credit) on income inequality in developed economies. Building on a model of financially open economies (Kunieda et al. (Macroecon Dyn 18:1091-1128, 2014)), defining its endogenous economic growth rate, and extending its implications also for top income shares, it is shown that the impact of bank credit on inequality depends on the gap between the real interest rate and the GDP growth rate ('r − g'). This finding is robustly confirmed by the empirical analysis on a few samples of OECD and EU countries, both for the Gini index and for top income shares. Both the econometric evidence and simple evidence show that the presence of this type of non-linearity (an interaction between financial deepening and r − g) is likely to be one of the reasons for the mixed results that may be found in the empirical literature on the relationship between the financial deepening and income inequality. Keywords Credit • Financial deepening • Income inequality • Interest rates • Open economy • r − g JEL Classification E44 • F43 • P43 V. Kvedaras: We thank the reviewers for useful comments with the usual disclaimer. The opinions expressed are those of the authors only and should not be considered as representative of the European Commission's official position.

show abstract

Section: Introductionsupporting

confidence: 54%

Section: Introductionmentioning

confidence: 91%

Section: Datamentioning

confidence: 99%

Section: Some Further Checksmentioning

confidence: 99%

See 2 more Smart Citations

Nonlinear impact of financial deepening on income inequality

Benczúr

Kvedaras

2020

Empir Econ

View full text Add to dashboard Cite

show abstract

“…This view can be taken as a first for the studies on interest rate and income inequality. A study that followed the footsteps of these authors was conducted by Battisti, Fioroni, and Lavezzi (2014). This study which reviews the growth model of Galor and Zeira in terms of the results associated with the decline in the interest rates in the world notes that in a theoretical model, decline in the interest rate in the world, depending on the initial requirements and conditions of the country, has a different effect upon the income inequality within the country.…”

Section: Literature Reviewmentioning

confidence: 99%

Reel Faiz Oranı ve Gelir Eşitsizliği Üzerindeki Etkisi

Bozik¹

2019

JEPR

View full text Add to dashboard Cite

Clarifying the factors for continually increasing income inequality is important to maintain fairness. This study, seeking to fulfil this objective, examines nine developed countries for the period of 2005-2015 and five developing countries for the period of 2003-2013. Utilizing panel data techniques, the study finds that where the price level of per capita investment is dependent variable of income distribution in developing countries, it exhibits a 5 pct-significance correlation. The real interest rate has no significant effect upon the income distribution variable. In developed countries, the human capital and real interest rate variable has a significant effect upon income distribution. Increase in human capital makes the income distribution fairer whereas increase in the real interest rate disrupts income equality.

show abstract

Reverse Causal Nexus between Pro‐Poor Policies and Income Inequality in Kenya

Maket

Kanó

Vas

2023

Regional Science Policy & Practice

View full text Add to dashboard Cite

Different developing economies are encountering various regional challenges associated with income inequality. However, several contributing factors to inequality and access to opportunities, such as a quality education system, have been identified as the key factors. Thus, the study sought to determine the reverse causal nexus between pro‐poor policies (government spending on education) and income inequality in Kenya and the spatial linking relationship with the case of Uganda’s and Tanzania’s economies. The autoregressive distributed lag (ARDL) model, Johansen cointegration test, and Granger Causality approach were used to model the relationship between pro‐poor policies and income inequality using time‐series data from 1982 to 2018. The findings indicate positive short‐ and long‐term relationships between government spending on education and income inequality in the three economies. Furthermore, the results show a significant long‐term relationship between human capital measures (average years of schooling, secondary school education attainment, and tertiary level education attainment) and income inequality in the three economies. However, the results indicate no reverse causal nexus between the study variables in Kenya and Uganda but unidirectional causal nexus exists in the case of the Tanzanian economy. The study recommends that government stakeholders implement pro‐poor policy initiatives that result in the structural change of social infrastructures and enhanced quality of life.

show abstract

World Interest Rates and Inequality: Insight From the Galor–zeira Model

Cited by 4 publications

References 55 publications

Nonlinear impact of financial deepening on income inequality

Nonlinear impact of financial deepening on income inequality

Reel Faiz Oranı ve Gelir Eşitsizliği Üzerindeki Etkisi

Reverse Causal Nexus between Pro‐Poor Policies and Income Inequality in Kenya

Contact Info

Product

Resources

About