Financial Development, Globalization and Income Inequality: Evidence from Selected MENA Countries

This thesis investigates the impact of financial development on income inequality for the 11 selected Middle East and North Africa (MENA) countries during the period from 1990 to 2015. A pooled mean group estimation (PMGE) of the dynamic heterogeneous panels is implemented in order to inspect the relationship between the studied variables. Furthermore, we employed panel cointegration to test for the existence of a long-run relationship between the variables. Our findings show the presence of a significant linear long-term negative relationship between financial development and income inequality. The outcomes are hence consistent with the inequality-narrowing hypothesis offered by Galor and Zeria (1993), Mookherjee and Ray (2003), and Banerjee and Newman (1993). Hence, we conclude that financial development is an important determinant of inequality reduction for these countries. Furthermore, there is a long-run negative relationship between trade openness, political globalization, financial development, government expenditure, real GDP, and income inequality; while a positive relationship exists between economic globalization and income inequality. Keywords: Income inequality, Financial development, Globalization, MENA region, Pooled mean group estimation.