The Journal of Economic Studies and Policies

The Journal of Economic Studies and Policies

The Effect of Financial Development on Income Inequality: A Case Study for the Middle East and North African Countries

Document Type : Original Article

Authors
Ali Taeibnia 1
Abbas Zareei 2
Hamid Yari 3
1 Associate Professor, Faculty of Economics, University of Tehran
2 Master of Economics
3 PhD student, University of Tehran
10.22096/esp.2010.26225
Abstract
Many studies have attempted to assess the effect of financial development on economic growth and it has been revealed that financial development can be assumed as a policy to promote economic growth. Regarding this issue, there are many aspects and problems to investigate; one of these important problems is whether all people are benefited from financial development or not. Do growth policies including financial development have some distributional effects? And, can these policies improve the average income by increasing income of both poor and rich people (neutralized distribution)? This paper studies the effect of financial development on income inequality in Middle East and North African countries. In order to achieve this goal, we have determined a model of income distribution in these countries, then we have investigated the effect of financial development on income inequality in these countries. The result indicates that financial development during 1990 – 2005 has decreased income inequality in these countries which has been great enough to change the existing income distribution pattern.
Keywords
Financial Development
Economic‌ Growth
Efficiency of Financial Sector
Income Inequality
  1. Aghion.p and Bolton, "Distribution and Growth in Models of Imperfect Capital Markets", European Economic Review, 36, 1992, 603-612.
  2. Ahluwalia .M.S, "Inequality, Poverty and Development", Journal of Development, DEC, 1979.
  3. Alesina, A. and R. Perotti,"Income Distribution, Political Instability and Investment", European Economic Review, 40(6), 1996, pp.1203-28.
  4. Barro, R, "Inequality and Growth in a Panel of Countries", Journal of Economic Growth, 2000, 5-32.
  5. Beck T, Demiraguc-kunt, A. and .Levin, "Finance, inequality and poverty: cross-country Evidence", World Bank Policy Research Working paper 3338, World Bank, Washington D.C, 2004.
  6. Clarke. G, Xu, L. C, and H. Zou, Finance and income inequality: Test of Alternative Theories, World Bank Policy Research Working paper, 2984, Washington D.C, 2003.
  7. Deininger, K. and L. Squire, "A New Data Set Measuring Income Inequality", World Bank Economic Review, 10(3), 1996, pp.565-91.
  8. Galor. O and J. Zeira, "income Distribution and Macroeconomics", Review of Economic Studies, 60, 1993, 35-52.
  9. Greenwood, J. and B. Jovanovich, "Financial Development, Growth, and the Distribution of income", Journal of political Economy, 98, 1990, 1076-1107.
  10. IMF, International Financial Statistics Database, Washington, DC, 2006.
  11. Kuznets, S, "economic Growth and income inequality", American Economic Review, 95, 1995, 1-28.
  12. Thorsten, Beck, Asli Demirguc - Kunt & Ross Levine, "Finance, Inequality and the Poor", Journal of Economic Growth, 12, 2007, 27-49.
  13. Liang, Zhicheng, "Financial Development and Income Distribution: A System GMM Panel Analysis with Application Turban China", Journal of Economic Development, Volume 31, 2006, Number 2.

  14. Townsend, R and Ueda,K, "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation", No 03/193, IMF Working Papers from International Monetary Fund, 2005.

Send comment about this article
Enter Name.
Enter a valid email address.
Enter a vaid affiliation.
Enter comments (At leaset 10 words)
CAPTCHA Image
Enter Security Code Correctly.