The social fragility of financial development. A regional panel analysis of the financial development and inequality nexus on prior middle-income countries

Sammanfattning: This paper investigates the impact of financial development as a bi-dimensional concept on inequality in a regional comparison of Asian as well as Latin American countries. The policy has previously been explicitly proposed for middle-income economies to boost growth and overall prosperity. While allowing for nonlinearities, this paper exploits both static, fixed effects as well as dynamic GMM estimation techniques utilising a self-assembled dataset on income shares as well as a set of macroeconomic controls motivated by earlier literature. The estimates retrieved in this analysis consistently imply inequality rises either immediately or in the long run depending on the geographic region. Although matching some earlier empirical work, the findings partly necessitate a further theoretical substantiation of the financial development and growth nexus, possibly incorporating aspects of intensified elitist rent-seeking behaviour as financialisation advances.