Abstract
Previous studies that analyzed income inequality mostly concentrated on identifying microeconomic determinants such as income, social factors (family structure, employment, or age distribution), or factor endowments; or such macroeconomic determinants as the exchange rate, economic openness or the black market premium. These studies also relied upon cross-section estimates in their assessments. In this paper, we introduce the "saving-investment" gap, which measures whether the need for financing is unmet, as another determinant of income inequality. We then apply time-series techniques in a study of 16 countries. Using the "bounds testing" cointegration method, in which variables in a given model can be stationary, non-stationary, or a combination of the two, we find varying results across countries. While these results highlight the need for further country-specific research, they indicate the benefits that external financing can provide.
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