The Role of Financial Development on Income Inequality in Malaysia

Siong, Hook Law; Hui, Boon Tan

doi:10.35866/caujed.2009.34.2.008

Cited by 59 publications

(17 citation statements)

References 25 publications

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“…More specifically, the result shows that an increase of credit by 10 percent triggers an increase by about 0.22 in the Gini coefficient. By employing ARDL, Law and Tan (2009) conclude the same result in the case of Malaysia. Hypotheses H1: Regional Islamic Regional financial depth has a negative effect on Income inequality H2: Economic growth has a negative effect on Income inequality H3: Human capital has a negative effect on Income inequality H4: Government expenditure has a negative effect on Income inequality…”

Section: Literature Reviewsupporting

confidence: 59%

Spatial analysis on the impact of Islamic regional financial depth on income inequality in Indonesia

Prastowo

Putriani

2022

J. Eko. Keu. Isl.

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Purpose – This paper aims to analyze the effect of financial depth in Islamic banks on income inequality in 33 provinces in Indonesia. Methodology – We use data for the period 2010-2018 from 33 provinces in Indonesia which are estimated using panel data to develop spatial panel data model. The dependent variable is income inequality, while the variable independent are Islamic regional financial depth, economic growth, human capital, and government expenditure.Findings – This research finds that Islamic Regional Financial Depth (FDS) has a positive and statistically significant direct effect on income inequality represented by Gini index. It means that an increase in the FDS will also cause an increase in the level of Gini index. In addition, the indirect effect of FDS on income inequality is also positive and significant, indicating that the ratio of financing to GRDP has a spillover effect on connected regions. Implications – This research recommends policymaker to expand the business of Islamic banking by financing the small medium enterprises and concern on the promotion of Islamic banking in the regional level. Originality – This study is potentially to contribute and be the early work which employs spatial analysis in the area of Islamic economics and finance. In addition, this study examines the impact of financial depth in Islamic bank on income inequality which is rarely discussed. Hence, this study presents relatively new information for policy makers, practitioners and researchers.

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Section: Literature Reviewsupporting

confidence: 59%

Spatial analysis on the impact of Islamic regional financial depth on income inequality in Indonesia

Prastowo

Putriani

2022

J. Eko. Keu. Isl.

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“…Using a panel data set of 91 countries for the period of 1960-1995, Clarke et al [7] examine the relation and find strong evidence that inequality decreases as economies develop their financial intermediaries, which is consistent with Galor & Zeira [18] and Banerjee & Newman [1]. Law & Tan [23] analyze the role of financial development in influencing income inequality in Malaysia over the period of 1980-2000 empirically based on ARDL bounds test. The results suggest financial development is insignificantly in narrowing income gap in Malaysia.…”

Section: Empirical Reviewmentioning

confidence: 61%

Financial Development and Income Inequality in China: An Application of SVAR Approach

Zhang

Chen

2015

Procedia Computer Science

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This paper studies the relationship of financial development and income inequality in China over the period of 1978-2013. Using the structural vector auto-regression (SVAR), the empirical results are consistent with the G-J hypothesis of an inverted U-shaped relationship between financial development and income inequality. An economy in its initial stages of financial development would present increasing inequality and only in a second or even third stage of development would inequality actually decrease. The evidence is valid for two indicators defined to measure the scale and the efficiency of financial development, respectively. Financial reform aimed at forming an appropriate financial system should be accelerated to help to reducing income inequality in China.

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“…Within the framework of empirical findings in Turkey, it is recommended that the following direct policies be followed (Law and Tan 2009;Suter 2010;Shahbaz and Islam 2011;Law et al 2014;Ahmed and Masih 2017;Kaidi et al 2018): (a) Policymakers should take measures to reduce constraints and disruptions in the financial markets when designing policies to combat poverty and economic growth. (b) A financial environment should be created to enable the poor to reach a better life opportunity.…”

Section: Resultsmentioning

confidence: 99%

“…This hypothesis, proposed by Galor and Zeira (1993) and Banerjee and Newman (1993), implies that the development of the financial sector will facilitate the access of the poor to the loans. Such a financial system might provide equal opportunities for talented and ambitious low-income individuals (Law and Tan 2009). Individuals are considered to inherit wealth at different levels.…”

Section: Introductionmentioning

confidence: 99%

The effect of financial development on income inequality in Turkey: An estimate of the Greenwood-Jovanovic hypothesis

Koçak

Uzay

2019

Review of Economic Perspectives

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This paper is the first to examine the linear and nonlinear effect of financial development on income inequality in Turkey over the period of 1980-2013. Financial development is represented by disaggregated and aggregated indicators. In this way, the effects of various financial indicators on income inequality are explained. Maki (2012) structural breaks co-integration test, and Stock and Watson (1993) dynamic ordinary least squares (DOLS) methods are followed for empirical analysis. Finally, the fully modified least squares (FM-OLS) regression analysis method developed by Philips and Hansen (1990) is used for robustness check. The estimation results of the linear relationship indicate that financial development is a mitigating effect on income inequality. These results support the inequality-narrowing hypothesis. The non-linear relationship results show that financial development first increases income inequality but after financial development reaches a certain level, this effect is reversed and financial development reduces income inequality. These results support the Greenwood-Jovanovic hypothesis. All the results strongly suggest that financial development is a mitigating or improving effect on income inequality over the long-run.

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The Role of Financial Development on Income Inequality in Malaysia

Cited by 59 publications

References 25 publications

Spatial analysis on the impact of Islamic regional financial depth on income inequality in Indonesia

Spatial analysis on the impact of Islamic regional financial depth on income inequality in Indonesia

Financial Development and Income Inequality in China: An Application of SVAR Approach

The effect of financial development on income inequality in Turkey: An estimate of the Greenwood-Jovanovic hypothesis

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