The Multidimensional Effects of Financialization on the Growth of Income Inequality: New Empirical Evidence for 97 Countries

Abstract

Increasing financial relations and transactions, which constitute one of the important components of income inequality, is the leading factor that should be considered in analyzing the transformations of internal dynamics of current economies. In this sense, the linkage of the changes in financial sector, which is examined under the concept of financialization, with income inequality is the basis of this study. The financialization-income inequality nexus deals with the period of 1991-2014 for 97 countries by way of analyzing with the fixed effects method. According to the empirical results, which include labor market variables as well as economic variables, there is a positive correlation between financialization and income inequality. In other words, increasing the scale of financial relations and transactions has a positive effect on income inequality. The empirical outputs point out that this fact mainly depends on the current transformation in the labor markets. The reduction in the bargaining power of labor is assumed to have an increasing effect on the level of income inequality within the framework of financialization.