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Does financial market growth improve income distribution? A comparison of developed and emerging market economies of the global sample

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  • Sudharshan Reddy Paramati
  • Thanh Pham Thien Nguyen

Abstract

The objective of this research is to investigate the effects of stock market indicators, banking, and foreign direct investment inflows on income inequalities in developed and emerging market economies around the world. For this reason, the study utilizes annual data that range from 1981 to 2014 on the selected indicators. Given the nature of our variables, we employ panel autoregressive distributed lag models to explore the long‐run estimates of income inequalities. The long‐run estimates indicate that the stock market indicators have significant positive and negative impact on income inequalities in developed and emerging market economies, respectively. Further, our findings show that the banking credit adversely affects income inequalities both in developed and emerging economies. Our results also establish significant short‐run causalities among stock market indicators and income inequalities. Given these findings, we argue that the stock markets are playing an important role in reducing income inequalities in emerging economies whereas they contribute for higher inequalities in developed economies.

Suggested Citation

  • Sudharshan Reddy Paramati & Thanh Pham Thien Nguyen, 2019. "Does financial market growth improve income distribution? A comparison of developed and emerging market economies of the global sample," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 629-646, January.
    • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:1:p:629-646
    DOI: 10.1002/ijfe.1683
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    Cited by:

    1. Chrysovalantis Amountzias, 2024. "Market power and income disparities: How can firms influence the gap between capital and labor earnings," Bulletin of Economic Research, Wiley Blackwell, vol. 76(3), pages 861-888, July.
    2. Yongfen Shi & Sudeshna Paul & Sudharshan Reddy Paramati, 2022. "The impact of financial deepening on income inequality: Empirical evidence from Australia," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3564-3579, July.
    3. Bahmani-Oskooee, Mohsen & Hasanzade, Mehrnoosh & Bahmani, Sahar, 2022. "Stock returns and income inequality: Asymmetric evidence from state level data in the U.S," Global Finance Journal, Elsevier, vol. 52(C).
    4. Durmuş Çagri Yildirim & Seda Yildirim & Seyfettin Erdogan & Tugba Kantarci, 2022. "Innovation—Unemployment Nexus: The case of EU countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1208-1219, January.
    5. H. Kent Baker & Satish Kumar & Kirti Goyal & Prashant Gupta, 2023. "International journal of finance and economics: A bibliometric overview," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 9-46, January.
    6. Jelson Serafim, 2021. "Financial deepening, Stock market, Inequality and Poverty: Some African Evidence," Working Papers REM 2021/0177, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    7. Carolyn Chisadza & Mduduzi Biyase, 2023. "Financial Development and Income Inequality: Evidence From Advanced, Emerging and Developing Economies," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 18(01), pages 1-27, March.
    8. Song, Yuegang & Paramati, Sudharshan Reddy & Ummalla, Mallesh & Zakari, Abdulrasheed & Kummitha, Harshavardhan Reddy, 2021. "The effect of remittances and FDI inflows on income distribution in developing economies," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 255-267.

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