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Symmetric and Asymmetric Effects of Financial Deepening on Income Inequality in South Africa

Author

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  • Mduduzi Biyase

    (Economic Development and Well-being Research Group (EDWRG), School of Economics, University of Johannesburg)

  • Carolyn Chisadza

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

The aim of this study is to examine the financial development-inequality nexus in South Africa from 1980 to 2017, specifically if financial deepening reduces income inequality. The asymmetric effects of financial deepening on income inequality is investigated by employing the autoregressive distributed lag by Pesaran et al. (2001). The initial results indicate a positive association between financial deepening and income inequality. On further exploration, we find evidence that the Greenwood and Jovanovich hypothesis holds for South Africa. We observe an inverted non-linear relationship between financial deepening and income inequality in the long-run. The results suggest that at early stages of financial development, income inequality increases, but gradually starts to decrease as the financial sector becomes more established in the long-run. The findings highlight the need for policymakers to focus on inclusive financial sector reforms in the early stages of development.

Suggested Citation

  • Mduduzi Biyase & Carolyn Chisadza, 2022. "Symmetric and Asymmetric Effects of Financial Deepening on Income Inequality in South Africa," Working Papers 202214, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202214
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    Cited by:

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    2. Mduduzi Biyase & Talent Zwane & Precious Mncayi & Mokgadi Maleka, 2023. "Do Technological Innovation and Financial Development Affect Inequality? Evidence from BRICS Countries," IJFS, MDPI, vol. 11(1), pages 1-18, March.
    3. Cakal-Velagic Jurdal & Silajdzic Sabina, 2024. "The Effects of Macroeconomic and Financial Development on Income Inequality: Evidence from the Western Balkans," South East European Journal of Economics and Business, Sciendo, vol. 19(1), pages 50-62.
    4. Khanday, Ishfaq Nazir & Tarique, Md., 2023. "Does income inequality respond asymmetrically to financial development? Evidence from India using asymmetric cointegration and causality tests," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    5. 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.
    6. Abdullah Almounsor & Sami Mensi, 2024. "The Relationship Between Financial Development, Institutions Quality, and Income Inequality from the Sub-Saharan Africa Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14307-14338, September.

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    More about this item

    Keywords

    financial deepening; income inequality; ARDL; South Africa;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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