Finance, Growth, and Inequality: New Evidence from the Panel VAR Perspective
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This study analyzes the relationship among financial development,economic growth, and income inequality using cross-country panelVAR models. Most theoretical models state that these variablesinteract with one another and generate feedback dynamics. Under the presence of such interactive dynamics, single-equationregression analysis cannot capture the genuine relationship amongfinance, growth, and inequality. We use the panel VAR modelsto reflect these interactive feedback dynamics. Our estimationresults suggest that the real GDP per capita decreases in responseto financial deepening shock in private credit or liquid liabilitybut increases to stock market capitalization shock. The effectsof financial deepening on inequality are only weakly positive andshort-lived. Positive income shock tends to increase inequality butthis effect is not robust to financial deepening measures. However,inequality is harmful for growth controlling for every financialdeepening measure.
Abstract
This study analyzes the relationship among financial development,economic growth, and income inequality using cross-country panelVAR models. Most theoretical models state that these variablesinteract with one another and generate feedback dynamics. Under the presence of such interactive dynamics, single-equationregression analysis cannot capture the genuine relationship amongfinance, growth, and inequality. We use the panel VAR modelsto reflect these interactive feedback dynamics. Our estimationresults suggest that the real GDP per capita decreases in responseto financial deepening shock in private credit or liquid liabilitybut increases to stock market capitalization shock. The effectsof financial deepening on inequality are only weakly positive andshort-lived. Positive income shock tends to increase inequality butthis effect is not robust to financial deepening measures. However,inequality is harmful for growth controlling for every financialdeepening measure.
참고문헌 (35)
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