Abstract
The objective of this study is to examine the relationship between commercial bank branches availability and income inequality. Further, the study also assesses the interaction effect of corruption and commercial bank availability on income inequality. The present study uses panel data estimation methods for analysing the above relationship for SAARC countries (Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka). The analysis suggests that a positive relationship exists between income inequality and financial availability in the initial stages. However, as the financial institutions reach a level of maturity and more people are integrated in the financial network, the level of income inequality starts reducing. Moreover, increase in financial availability helps in reducing income inequality when it is supported by less corrupt institutions. Policymakers should focus on reducing the level of corruption so as to enhance the effectiveness of the penetration of commercial bank branches.
Highlights
Income inequality is a persistent phenomenon and a fundamental issue of concern
The objective of this study is to examine the relationship between commercial bank branches availability and income inequality
The analysis suggests that a positive relationship exists between income inequality and financial availability in the initial stages
Summary
Income inequality is a persistent phenomenon and a fundamental issue of concern. In the last few decades, researchers have tried to search out for the many sources of income inequality and subsequently, the adverse consequences it has on the social and economic conditions of the world. Even due to the increasing financial liquidity and size of financial system the poorer section of the society may not always be benefitted. This is due the fact that access to financial services and knowledge about them is not yet democratized. Levine (2005) states that a large section of literature points to the direction that development of financial sector leads to faster economic growth though researchers are inconclusive as to whether this development benefits the entire population or not. It is a widely acknowledged fact that widespread corruption in societies breaks down governance systems at the grassroot and that in turn exacerbates income inequality This may happen in spite of increased financial development.
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