Prague Economic Papers 2022, 31(6):464-481 | DOI: 10.18267/j.pep.815

Financial Stability and Income Inequality in Developing Countries

Margaret Rutendo Magwedere ORCID...a, Godfrey Marozva ORCID...a
a University of South Africa, College of Economics and Management Sciences, Pretoria, South Africa

This paper examines the relationship between financial stability and income inequality in 35 developing countries from 2004 to 2020 using system generalized method of mo- ments (GMM) estimation. Four dimensions of the financial sector, namely financial stability, depth, access and efficiency were included as regressors. The results for the relationship of each of the financial dimensions with income inequality are mixed. In this study, inequality increases with an increase in the stability of the financial sector; on the contrary, the depth of the financial sector reduces inequality. Furthermore, not only does the dimension of the financial sector matter in addressing income inequality issues, but the quality of institutions is important. It is important for policy makers to understand linkages between financial dimensions and inequality so as to come up with appropriate prudential regulatory mechanisms.

Keywords: Financial stability, inequality, financial dimensions, developing countries
JEL classification: D31, E02, E44, G20, O15, O16

Received: February 4, 2022; Revised: July 12, 2022; Accepted: September 13, 2022; Published: December 29, 2022  Show citation

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Rutendo Magwedere, M., & Marozva, G. (2022). Financial Stability and Income Inequality in Developing Countries. Prague Economic Papers, 31(6), 464-481. doi: 10.18267/j.pep.815
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