Influence of Financialization of Income Inequality in Asean: Data Panel Analysis

Abstract

This paper examines the impact of financialization on income inequality in ASEAN-5 countries for the period of 1990-2013 by employing panel data analysis. The data was collected from various secondary sources by undertaking fixed effect model and generalized method moment. The result shows that there is a significant relationship between all financialization indicators and income distribution. Generalized method moment analysis using Arellano-Bond estimator also shows that all financialization indicators have a significant relationship with income distribution. There is no different sign estimator both in fixed model effect and generalized method moment analysis. This paper revealed that financialization indicators such as stock market capitalization and return on assets contribute positively to worsen income inequlality. Incontrast, domestic private debt securities have a negative effect on gini coefficient in ASEAN-5 countries indicating that increasing domestic private debt securities will improve income distribution in the region.

Financial Deepening and Income Inequality in Indonesia

“…The group has the financial ability to invest heavily in the early period of the golden stock market. Furthermore, it is in line with Buhaerah (2017) where the variable of market capitalization value and return on the pre-tax assets are positively correlated to income inequality.…”

“…This research is consistent with Ang (2010) where the results show that bank branch expansion is associated with lower income inequality. Moreover, Buhaerah (2017) stated that the value of domestic private debt securities has a negative relationship with income disparities. This indicates that the increase of domestic private debt securities can serve as an instrument to improve income distribution level.…”

“…Exogenous factors that spur economic disparities are globalization of trade, finance and change in technology (UNDP, 2018). The contributing domestic factors (endogenous) affecting the inequality of the income distribution are macroeconomic policy, labour market policies, wealth inequality, taxation policies and transfers, and government spending (Buhaerah, 2017).…”

Periphery and Small Ones Matter

“…To the extent 'financialization' is easier to detect and measure than financial liberalization, some studies looked instead at the impact of 'financialization' by using a standard indictor such as the size of financial assets on inequality. Using stock market capitalization and returns on asset (ROA) as indicators of financialization, Buhaerah (2017) used panel data of ASEAN countries including Indonesia and found a negative effect of financialization on inequality. Greater capitalization and higher ROA tend to worsen inequality.…”

The Effect of Financial Literacy and Financial Inclusion on Income Inequality in Indonesia

“…Income inequality is an important issue that must be considered, as it can disrupt economic growth and governance (Wibowo, 2016). In some cases, inequality has been shown to trigger economic instability, making the economy challenging to predict over time (Buhaerah, 2017). Even income inequality can distort economic growth.…”