Finance-inequality nexus in emerging countries

This study intends to empirically test the relationship between financial development and income inequality in advanced emerging and secondary emerging countries. To study the impact of financial development on income inequality, we cover five bankbased and market-based dimensions of financial development. These are access, depth, efficiency, stability, and liberalization. We use a panel of 20 countries for the time period between 2000-2017 and estimate the empirical model by employing dynamic panel data method of Generalized Method of Moments (GMM). Our findings suggest that only one dimension of bank-based financial development namely depth is significant in reducing income inequality. In case of stock market-based financial development three dimensions namely depth, efficiency, and stability are important to alleviate income inequality. We also find strong support for income inequality reducing impact of financial liberalization. We conclude that, in our sample of emerging countries, stock market-based financial development plays a more significant and effective role in abridging income inequality than the bank-based financial development. Keywords: Banking System Development, Emerging Countries, Generalised Method of Moments, Income Inequality, Stock Market Development