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Financial Stability and Income Inequality in Developing Countries

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  • Margaret Rutendo Magwedere
  • Godfrey Marozva

Abstract

This paper examines the relationship between financial stability and income inequality in 35 developing countries from 2004 to 2020 using system generalized method of mo- ments (GMM) estimation. Four dimensions of the financial sector, namely financial stability, depth, access and efficiency were included as regressors. The results for the relationship of each of the financial dimensions with income inequality are mixed. In this study, inequality increases with an increase in the stability of the financial sector; on the contrary, the depth of the financial sector reduces inequality. Furthermore, not only does the dimension of the financial sector matter in addressing income inequality issues, but the quality of institutions is important. It is important for policy makers to understand linkages between financial dimensions and inequality so as to come up with appropriate prudential regulatory mechanisms.

Suggested Citation

  • Margaret Rutendo Magwedere & Godfrey Marozva, 2022. "Financial Stability and Income Inequality in Developing Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(6), pages 464-481.
    • Handle: RePEc:prg:jnlpep:v:2022:y:2022:i:6:id:815:p:464-481
    DOI: 10.18267/j.pep.815
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    More about this item

    Keywords

    Financial stability; inequality; financial dimensions; developing countries;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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