Finance, Growth, and Inequality: New Evidence from the Panel VAR Perspective

Seoul Journal of Economics 2018, Vol. 31, No. 2

24 Pages Posted: 16 Jun 2018

See all articles by Hyeok Jeong

Hyeok Jeong

Seoul National University

Soyoung Kim

Seoul National University

Date Written: May 30, 2018

Abstract

This study analyzes the relationship among financial development, economic growth, and income inequality using cross-country panel VAR models. Most theoretical models state that these variables interact with one another and generate feedback dynamics. Under the presence of such interactive dynamics, single-equation regression analysis cannot capture the genuine relationship among finance, growth, and inequality. We use the panel VAR models to reflect these interactive feedback dynamics. Our estimation results suggest that the real GDP per capita decreases in response to financial deepening shock in private credit or liquid liability but increases to stock market capitalization shock. The effects of financial deepening on inequality are only weakly positive and short-lived. Positive income shock tends to increase inequality but this effect is not robust to financial deepening measures. However, inequality is harmful for growth controlling for every financial deepening measure.

Keywords: Economic growth, Inequality, Finance, Dynamic

JEL Classification: O11, O47, E44, D31

Suggested Citation

Jeong, Hyeok and Kim, Soyoung, Finance, Growth, and Inequality: New Evidence from the Panel VAR Perspective (May 30, 2018). Seoul Journal of Economics 2018, Vol. 31, No. 2 . Available at SSRN: https://ssrn.com/abstract=3187163

Hyeok Jeong (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Soyoung Kim

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)
+82-2-880- 2689 (Phone)

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