Revisiting the Finance-Inequality Nexus in a Panel of African Countries

Research in International Business and Finance, 46 (December 2018), pp. 399-419

38 Pages Posted: 22 May 2018 Last revised: 26 Sep 2018

See all articles by Christelle Meniago

Christelle Meniago

Sol Plaatje University - School of Economics and Management Sciences

Simplice Asongu

African Governance and Development Institute

Date Written: January 7, 2018

Abstract

The study assesses the role of financial development on income inequality in a panel of 48 African countries for the period 1996 to 2014. Financial development is defined in terms of depth (money supply and liquid liabilities), efficiency (from banking and financial system perspectives), activity (at banking and financial system levels) and stability while, three indicators of inequality are used, namely, the: Gini coefficient, Atkinson index and Palma ratio. The empirical evidence is based on Generalised Method of Moments. When financial sector development indicators are used exclusively as strictly exogenous variables in the identification process, it is broadly established that with the exception of financial stability, access to credit (or financial activity) and intermediation efficiency have favourable income redistributive effects. The findings are robust to the: control for unobserved heterogeneity in terms of time effects and inclusion of time invariant variables as strictly exogenous variables in the identification process. The findings are also robust to the Kuznets hypothesis: a humped shaped nexus between increasing GDP per capita and inequality. Policy implications are discussed.

Keywords: Africa; Finance; Inequality; Poverty

JEL Classification: D60; E25; G20; I30; O55

Suggested Citation

Meniago, Christelle and Asongu, Simplice, Revisiting the Finance-Inequality Nexus in a Panel of African Countries (January 7, 2018). Research in International Business and Finance, 46 (December 2018), pp. 399-419. Available at SSRN: https://ssrn.com/abstract=3175034

Christelle Meniago

Sol Plaatje University - School of Economics and Management Sciences ( email )

Chapel St. & Bultfontein Rd.
Civic Centre
Kimberley, 8301
South Africa

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

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