Title: Financial sector development and income inequality in ASEAN-5 countries: does financial Kuznets curve exists?

Authors: Muhammad Azam; Syed Ali Raza

Addresses: School of Economics, Finance and Banking, College of Business, Universiti Utara Malaysia, Malaysia ' Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Malaysia

Abstract: This study investigates the influence of financial sector development on income inequality in ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand between 1989 and 2013. We have constructed the financial development index for the selected ASEAN countries by applying the principle component method for the major four proxies of financial development available in literature, namely; domestic credit by the banking sector, domestic credit to the private sector, money supply and stock market capitalisation. Pedroni panel cointegration and Kao residual panel cointegration approaches confirm the valid long run relationship between considered variables. Results of fixed-effect model indicate that the different proxies of financial development have a positive and significant impact on income inequality in ASEAN-5 countries, while the squared term of financial development proxies have a negative and significant impact on income inequality. These findings confirm the presence of financial Kuznets hypothesis in ASEAN-5 countries during the period under the study.

Keywords: inequality; financial development; panel data; ASEAN-5.

DOI: 10.1504/GBER.2018.088482

Global Business and Economics Review, 2018 Vol.20 No.1, pp.88 - 114

Received: 18 Dec 2015
Accepted: 16 May 2016
Published online: 11 Dec 2017 *

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