Younsi, Moheddine and Bechtini, Marwa (2018): Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests.
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Abstract
The purpose of this paper is to examine the causal relationship between economic growth, financial development and income inequality for the BRICS countries, namely; Brazil, Russia, India, China, and South Africa, using annual panel data covering the period 1995-2015. We construct a composite financial sector development index for these countries by applying the principal component method on the main four proxies of financial development, that is, domestic credit to private sector to GDP ratio, domestic credit given by banks sector to GDP ratio, M2/GDP, and stock market capitalization to GDP ratio. Results of Pedroni panel cointegration and Kao residual panel cointegration tests confirm the valid long-run cointegration relationship between the considered variables. Fixed effects estimation results show that GDP per capita growth has a positive and significant effect on income inequality, while the coefficient of its squared term has negative and significant effect on income inequality. Similarly, financial development index appears to have a positive and statistically significant effect on income inequality, while its squared term has negative and statistically significant effect on income inequality. Our empirical findings support the financial Kuznets hypothesis of an inverted U-shaped relationship between economic growth, financial sector development and inequality in the BRICS countries over the study period. Our results are robust by employing POLS and GMM estimators. Results of Granger causality test shown that there is a unidirectional causality running from financial development index to income inequality, but a bidirectional causality between inflation and income inequality is found. However, there is no causal relationship between income inequality and economic growth. These findings are expected to help policymakers to reduce inequality in these countries through the improvement of taxation policies financial system.
Item Type: | MPRA Paper |
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Original Title: | Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests |
English Title: | Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests |
Language: | English |
Keywords: | Economic growth, financial development, income inequality, financial Kuznets hypothesis, BRICS countries. |
Subjects: | D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement G - Financial Economics > G2 - Financial Institutions and Services > G20 - General O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development |
Item ID: | 85384 |
Depositing User: | Dr. Moheddine Younsi |
Date Deposited: | 22 Mar 2018 16:55 |
Last Modified: | 28 Sep 2019 09:11 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/85384 |
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Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests. (deposited 14 Mar 2018 12:36)
- Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests. (deposited 18 Mar 2018 05:01)
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Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests. (deposited 17 Mar 2018 23:05)
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