Abstract
This study was aimed at investigating the nonlinear effect of financial development on income inequality in South Africa. Annual data from 1970 to 2018 was investigated, and based on the ARDL bounds testing technique, the estimates indicated that financial development exerts a nonlinear impact on income inequality. In addition, the relationship between the two variables was found to be U-shaped, implying that financial development at early stages narrows the income-inequality gap before crossing certain thresholds beyond which the gap is widened. These results could imply the presence of market imperfections such as prohibitive transaction costs, information asymmetries, as well as collateral and credit history constraints in the system. Consequently, the monetary authorities should prioritise an evaluation of the nation’s financial system, with a view to reducing imperfections in the markets so as reduce income inequality through the mechanism of financial development.
Original language | English |
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Pages (from-to) | 335-351 |
Number of pages | 17 |
Journal | International Journal of Economics and Finance Studies |
Volume | 12 |
Issue number | 2 |
DOIs | |
Publication status | Published - 2020 |
Externally published | Yes |
Keywords
- ARDL
- Inequality
- bounds testing
- financial development
- nonlinear
ASJC Scopus subject areas
- Economics, Econometrics and Finance (miscellaneous)