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What do we know about the relationship between banks and income inequality? Empirical evidence for emerging and low-income countries

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  • de Moraes, Claudio Oliveira
  • Cruz, Guilherme

Abstract

The objective of this article is to examine whether the banking sector contributes to reducing income inequality and poverty. We assess the effect of banks on income inequality considering various banking qualities with a dynamic panel data analysis of 46 emerging markets (EMs) and 66 low-income countries (LICs) using updated data for the 2000–2018 period. The simultaneous and non-linear effects of banking qualities were also evaluated. The results indicate that banking activities (i.e., availability, relevance, and financial efficiency) reduce income inequality and poverty for EMs and LICs. However, there is an optimal degree of each quality mentioned for banks’ impact on inequality beyond which it increases rather than decreases income inequality.

Suggested Citation

  • de Moraes, Claudio Oliveira & Cruz, Guilherme, 2023. "What do we know about the relationship between banks and income inequality? Empirical evidence for emerging and low-income countries," Journal of Economics and Business, Elsevier, vol. 123(C).
    • Handle: RePEc:eee:jebusi:v:123:y:2023:i:c:s014861952200042x
    DOI: 10.1016/j.jeconbus.2022.106086
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