Finance and Inequality: Theory and Evidence

By Asli Demirgüç-Kunt, Ross Levine. 2009

544 citations recorded by the source corpus.

This paper critically reviews the literature on finance and inequality, highlighting substantive gaps in the literature. Finance plays a crucial role in most theories of persistent inequality. Unsurprisingly, therefore, economic theory provides a rich set of predictions concerning both the impact of finance on inequality and about the relevant mechanisms. Although subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality. Furthermore, there is no conceptual framework for considering the joint and endogenous evolution of finance, inequality, and economic growth.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/39198068e66518f772421769a370b5bd88035118

Citations in the corpus

Finance and Income Inequality: A Review and New Evidence (2017, unknown): “Perhaps these frictions can be reduced by other factors, such as technology, without a larger financial sector (Demirgüç‐Kunt and Levine, 2009). This suggests that other financial sector characteristics than size should be examined. Most empirical research focuses, however, on financial sector size,”
Does economic globalisation affect income inequality? A meta‐analysis (2020, unknown): “…the links between economic globalisation and income inequality; excellent review papers are abundant (e.g. Burtless 1995; Ravallion 2003; Winters et al. 2004; Anderson 2005; Mills 2009; Demirguc-Kunt and Levine 2009; Nissanke and Thorbecke 2010; Harrison et al. 2011; de Haan and Sturm 2017).”
The Finance and Growth Nexus Re-Examined: Do All Countries Benefit Equally? (2013, unknown): “As surveyed first by Levine (1997a), then by Demirguc-Kunt and Levine (2008, 2009), there is a vast literature showing the benefits that accrue to countries in which financial development is greater.”
Economic Growth, Financial Development, and Income Inequality (2017, unknown): “For example, Demirgüç-Kunt and Levine (2009) argue that financial development can affect income inequality indirectly by changing the composition of labor demand.”
Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries (2014, unknown): “Hence, finance is not only pro-growth but it is also pro-poor, suggesting that financial development helps the poor catch up with the rest of the economy as it grows (Demirguc-kunt & Levine, 2009).”
Capital account liberalization and income inequality (2016, unknown): “The distributional effects of ﬁnancial depth mainly depend on whether ﬁnancial depth operates on the extensive or the intensive margin (Demirgüç-Kunt and Levine, 2009).”
Financial Institutions and Markets across Countries and over Time (2010, unknown): “1993; De Nicolo 2000).”
Has Digital Financial Inclusion Narrowed the Urban-Rural Income Gap: The Role of Entrepreneurship in China (2021, unknown): “Demirguc et al. further pointed out that when a country’s ﬁnancial system can provide ﬁnancing for middle and low-income groups with an entrepreneurial spirit and help some of them become entrepreneurs, the local poverty rate and income gap will be greatly reduced [60].”
Financial Inclusion, Financial Literacy and Economically Vulnerable Populations in the Middle East and North Africa (2019, unknown): “…linked to income and wealth inequality, poverty, GDP growth rates, and employment (Beck, Demirgüç-Kunt, and Levine 2007; Buera, Kaboski, and Shin 2012; Dabla-Norris et al. 2015; Demirgüç-Kunt and Levine 2009; ILO 2015; Inoue and Hamori 2016; Kim 2016; Neaime and Gaysset 2018; Sahay et al. 2015).”