Financial development and income inequality in Pakistan: An application of ARDL approach

By Muhammad Shahbaz, Faridul Islam. 2011

166 citations recorded by the source corpus.

The paper examines the relationship between financial development and income inequality; and also explores if the Greenwood and Jovianvich (GJ) hypothesis applies to Pakistan. Using data from 1971 to 2005, the paper implements the Auto Regressive Distributed Lag (ARDL) bounds testing approach to cointegration to examine the existence of long run; and the error correction model (ECM) for the short run relationships. Stationarity properties of the series are checked by the ADF method. The findings indicate that financial development reduces income inequality while financial instability aggravates it. Contrary to the conventional wisdom, we find economic growth worsens income distribution and that the latter is deteriorated further by trade openness. The paper does not find support for the GJ relation. Appropriate reforms aimed at developing a well-organized financial sector in Pakistan can help reduce income inequality.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/112bfd197c3c75aba45c3ebb4e2696ae963f08b4

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Citations in the corpus

Financial Development and Poverty Reduction Nexus: A cointegration and causality analysis in Bangladesh (2013, background): “The distribution of income is enhanced in order to implementation of the easy access to financial resources (Shahbaz, 2009; Shahbaz and Islam, 2011).”
Financial Development and Income Inequality: Is There Any Financial Kuznets Curve in Iran? (2014, background): “These findings are consistent with line of literature such as Shahbaz (2010); Shahbaz and Islam (2011) in Pakistan and Bittencourt (2010) in Brazil.”
Financial Development, Technological Innovation and Income Inequality: Time Series Evidence from Turkey (2021, unknown): “Our empirical result is dissimilar to Shahbaz and Islam (2011) for Pakistan, Sehrawat and Giri (2015) for India, Younsi and Bechtini (2018) for BRICS countries and Adams and Klobodu (2019) for 21 SSA countries.”