Finance, Distribution and the Economic Objective of Financial Cooperative Institutions

25 Pages Posted: 28 Apr 2020

Date Written: September 2019

Abstract

This paper proposes a model where the structure rather than the size of the financial sector explains its influence on income distribution. Because of information asymmetries, a financial sector dominated solely by profit‐maximizing financial intermediaries will increase income and wealth inequality as it gives preferential access to credit for high‐income agents, whereas a diversified inclusive financial sector with alternative models of finance, like cooperatives, will reduce the inequality gap. No full convergence in income distribution can be realized through finance only and there is still a need for redistribution policies. Accordingly, an objective function for cooperative financial institutions should define a desired pricing behaviour that can increase the income of members at a rate higher than the average growth rate of the economy.

Keywords: Income inequality, financialization, financial cooperatives

JEL Classification: D63, E44, G2, O1, P13

Suggested Citation

Khafagy, Amr, Finance, Distribution and the Economic Objective of Financial Cooperative Institutions (September 2019). Annals of Public and Cooperative Economics, Vol. 90, Issue 3, pp. 487-511, 2019, Available at SSRN: https://ssrn.com/abstract=3586866 or http://dx.doi.org/10.1111/apce.12216

Amr Khafagy (Contact Author)

Ruhr University of Bochum ( email )

Universit├Ątsstra├če 150
Bochum, NRW 44780
Germany

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