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Financial development and income inequality: A nonlinear econometric analysis of 21 African countries, 1994-2015

Author

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  • Lindokuhle Talent Zungu
  • Lorraine Greyling

Abstract

A panel data analysis of financial inequality was conducted using the PSTR model to determine the threshold level at which excessive financial development worsens inequality. The results reveal evidence of a nonlinear effect between financial development and income inequality where the optimal level of financial development is found to be 19% as a share of GDP above which financial development increases inequality in African countries. The findings combine into a U-shape relationship, in line with other research in African studies. In this particular case, policy-makers are challenged to come up with policies that enforce the distributive effects of financial development with a view to share wealth equitably.

Suggested Citation

  • Lindokuhle Talent Zungu & Lorraine Greyling, 2021. "Financial development and income inequality: A nonlinear econometric analysis of 21 African countries, 1994-2015," ERSA Working Paper Series, Economic Research Southern Africa, vol. 0.
    • Handle: RePEc:rza:ersawp:v::y:2021:i::id:73
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    File URL: https://ersawps.org/index.php/working-paper-series/article/view/73/48
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