Symmetric and asymmetric effects of financial deepening on income inequality in South Africa

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Authors

Biyase, Mduduzi
Chisadza, Carolyn

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Routledge

Abstract

The aim of this study is to examine the financial development-inequality nexus in South Africa from 1980 to 2017, specifically if financial deepening reduces income inequality. The initial results indicate a positive association between financial deepening and income inequality. On further exploration, we find evidence that the Greenwood and Jovanovich hypothesis holds for South Africa. We observe an inverted non-linear relationship between financial deepening and income inequality in the long-run. The results suggest that at early stages of financial development, income inequality increases, but gradually starts to decrease as the financial sector becomes more established in the long-run. The findings highlight the need for policymakers to focus on inclusive financial sector reforms in the early stages of financial development.

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Keywords

Financial deepening, Income inequality, Autoregressive distributed lag (ARDL), South Africa (SA), SDG-08: Decent work and economic growth, SDG-10: Reduced inequalities

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Citation

Mduduzi Biyase & Carolyn Chisadza (2023): Symmetric and asymmetric effects of financial deepening on income inequality in South Africa, Development Southern Africa, vol. 40, no. 5, pp. 961-978, DOI: 10.1080/0376835X.2022.2163226.