S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.31 no.1~4 (2018)
Finance, Growth, and Inequality: New Evidence from the Panel VAR Perspective
- Jeong, Hyeok; Kim, Soyoung
- Issue Date
- Seoul Journal of Economics, Vol.31 No.2, pp. 121-143
- 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.