The finance-inequality nexus in the BRICS countries: Evidence from an ARDL bound testing approach
The aim of this paper is to investigate the long run relation between financial development and income inequality by exploring the shape of the curve that describes it for the BRICS countries namely Brazil, Russia, India, China and South Africa. We test the Greenwood and Jovanovich (1990) hypothesis by estimating an Autoregressive Distributed Lag (ARDL) model for the period 1980-2017. We consider three dimensions of financial development: depth, access and efficiency in both markets and institutions, while household’s income before taxes is the proxy for income inequality. Our findings confirm, with the exception of South Africa, the existence of an inverted U-shaped curve relation in Brazil, Russia, India and China; which validate the Greenwood and Jovanovich (1990) hypothesis and the positive impact of financial development on income inequality. Our policy recommendation for South Africa is the necessity of improving its population’s effective access, under appropriate regulation, to a range of formal financial services meeting their needs.
Copyright (c) 2022 Wissem Boukraine
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.