Financial Kuznets Research Articles

Financial sector development and renewable energy consumption nexus: Evidence from global dynamic panel threshold analysis

AbstractDecarbonizing economies requires an energy transition from conventional energy resources to renewable and clean energy resources. However, this transition largely depends upon the availability of huge investments to manage high start‐up costs and operational infrastructure. In this respect, the financial sector can play a vital role. This study explores the financial sector's role in renewable energy consumption utilizing a comprehensive measure of financial sector development constituting both financial institutions and financial markets. Moreover, the study utilizes an advanced econometric technique “dynamic panel threshold model” on panel data of 165 countries ranging from 1980 to 2019. The empirical analysis reveals the presence of a threshold value of 0.191, 0.196, and 0.008 for the overall financial development index, financial institutions index, and financial market index, respectively. This finding confirms the presence of a U‐shaped curve between financial sector development and renewable energy consumption, validating the existence of the financial Kuznets curve. Thus, initially, financial sector development results in lower renewable energy consumption while after reaching the threshold level it boosts renewable energy consumption. Furthermore, the study also shows the statistically significant role of economic growth, trade openness, and inflation in explaining renewable energy usage. The obtained outcomes suggest a pressing necessity to improve both financial institutions and markets to surpass the threshold levels of financial sector performance within the financial sector, thus supporting a rise in renewable energy consumption.

Financial Development and Income Inequality in Nigeria: Testing the Financial Kuznets Curve Hypothesis

This study aims to investigate the link between financial development and income inequality in Nigeria, considering the potential existence of a financial Kuznets curve in Nigeria from 1986 to 2022. The study uses datasets from the World Bank and International Monetary Fund Database. It employs the Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), Zivot-Andrews (ZA), ARDL bounds testing approach, and the Toda-Yamamoto causality test to determine the direction of causality between the two variables. The study finds evidence of an inverted U-shaped relationship between financial development and income inequality, potentially supporting the Financial Kuznets curve hypothesis in Nigeria. Additionally, the results of the Toda-Yamamoto causality test show a unidirectional causality running from financial development to income inequality. The findings have significant implications for economic development and social stability in Nigeria, emphasizing the need for targeted policies to mitigate the potential adverse effects of financial development on income inequality. This study fills a gap in existing research by examining the financial Kuznets curve in Nigeria and accounting for structural breaks, thus contributing valuable insights to the ongoing debate on finance and inequality.

The Relationship Among Trade Openness, Financial Development and Economic Growth Indicators and Income Distribution Inequality: Testing the Kuznets, Financial Kuznets, and Stolper-Samuelson Hypotheses

The Relationship Among Trade Openness, Financial Development and Economic Growth Indicators and Income Distribution Inequality: Testing the Kuznets, Financial Kuznets, and Stolper-Samuelson Hypotheses

Analysis of Turkey's classic and financial kuznets curves in regards to the level of development and increased distribution

In this research, we probe the authenticity of both the Financial Kuznets Curve hypothesis and the classical Kuznets curve within the Turkish economy, exploring the interrelation between financial development and income distribution. By employing the ARDL bounds test approach in the econometric analysis, we ascertain that the Financial Kuznets Curve is applicable to Turkey. This means the correlation between income distribution and the extent of financial development adopts an inverted U-shaped pattern. Moreover, the interrelation between GDP and income distribution doesn’t form an inverted U pattern, demonstrating that the classical Kuznets curve is not pertinent in the context of Turkey. From the derived outcomes, it is inferred that prioritizing policies that accentuate financial development would constitute a more judicious economic strategy in Turkey, particularly for redressing disparities in income distribution, instead of merely focusing on economic growth.

Non-linear dynamics in finance–inequality nexus: time series evidence from the Indian economy

PurposeThe principal aim of this study is to examine the relationship between financial development and income inequality in India using the financial Kuznets curve (FKC) hypothesis.Design/methodology/approachThis study uses the autoregressive distributed lag (ARDL) model and the Toda–-Yamamoto causality test to investigate the long-run and short-run relationship and causality between financial development and income inequality. In addition, this study employs a principal component analysis (PCA) to construct a comprehensive financial development index.FindingsThe study found a long-run relationship between financial development and income inequality in India for the period under consideration. Trade is found to improve the income distribution, while inflation worsens income distribution. Moreover, the empirical results revealed a feedback causality between financial development and income inequality. The study results confirm an inverted U-shaped relationship between financial sector development indicators and income inequality, thus validating the FKC hypothesis for the Indian economy.Research limitations/implicationsThe study draws attention of the government and policymakers, urging them to focus on building a strong financial sector by improving its efficiency. This, in turn, will lead to enhanced financial stability and a reduction in income inequality. They should prioritise the development of high-quality and sustainable financial products and services to ensure the robust growth of the financial sector.Originality/valueTo the best of our knowledge, this study is the latest of its kind to empirically test the financial development on income inequality and the FKC hypothesis simultaneously for the Indian economy using financial proxy variables from financial institutions (FIs) and financial markets (FMs) for the measurement of financial depth.

The effects of financial development and tax on income inequality in Turkiye: The financial Kuznets curve hypothesis

One of the factors that ensure the peace of society in a country is the fair distribution of income in that country. With the access of individuals to financial resources, the level of income increases, and this increase makes income distribution an even more important issue. Financial development is an important factor that can prevent income inequality. Kuznets approach put forward by Kuznets (1955) has been named the financialKuznets curve (FKC) with the finding of Greenwood and Jovanovic (1990). According to their theoretical stipulations, an inverted-U relation between financial sector development and income inequality exists. The main purpose of this study is to investigate whether financial development and tax have an effect on income distribution in the Turkish economy between the period of 1995-2021. Longterm estimation via ARDL boundary test indicates that the variables are cointegrated. It is revealed that the FKC hypothesis is not valid in the selected period.

Financialisation and income inequality: An investigation of the financial Kuznets curve hypothesis among developed and developing countries

The Financial Kuznets Curve (FKC) is a variant of the renowned Kuznets Curve and a counterpart to the Environmental Kuznets Curve. In this paper, we examine the financial Kuznets curve hypothesis—based on annual data for 20 developed and developing countries—using the Phillips and Hansen (1990) fully modified ordinary least square (FMOLS) and the unobserved components model (UCM). The results correspond to the current divergence in the empirical literature and show support for the inverted U-shaped curve as well as the U-shaped curve, in more than half of the sample countries. The estimated turning points differ significantly across countries and depending on the measure of financialisation used. Overall, the findings of this research suggest that there is no uniform effect of financialisation on income inequality. The results vary according to the level of economic development, financial structure, and potentially other factors that have not been considered in the empirical analysis provided in this paper.

The financial Kuznets curve of energy consumption: Global evidence

In this study, we explore the simultaneous existence of a Financial Kuznets Curve -an inverted U-shape relation between financial development and energy consumption- and Income Kuznets Curve -an inverted U-shape relation between income and energy consumption-for a panel of 85 countries. In terms of the financial Kuznets relation, we compare the effects of three stock market development indicators (i.e., stock market capitalization ratio, stock market value traded, and stock market turnover ratio) with the counterpart effects of three credit market indicators (i.e., domestic credit provided by the banking sector, liquid liabilities, and broad money supply. Drawing on the existing literature, we control for changes in country openness, natural resource endowments, and inflation by applying four methods in parallel: the parametric analysis (dynamic system GMM), and the non-parametric (panel quantile regression) as a robustness check. The results for both Kuznets curves are robust to all four methods. They indicate a simultaneous existence of an income Kuznets curve and a Financial Kuznets Curve when the indicators of the stock market development are considered. However, no Financial Kuznets Curve exists with respect to the credit markets’ development. When the credit markets are considered, only the income Kuznets curve is detected. The existence of a relationship between the stock market development and energy consumption has implications for national energy policies. Stock markets should be used actively for the promotion and funding of “green finance” industrial projects, encouraging innovation and new technologies for cleaner production. Our findings are also useful for crafting different financial development policies for countries that are seeking to encourage or discourage energy consumption.

Financial development, technological innovation and urban-rural income gap: Time series evidence from China.

The main purpose of the paper is to investigate the relationship between technological innovation and income inequality for China based on the financial Kuznets curve (FKC) hypothesis. The study uses time-series data from 1985 to 2019. We employ the Johansen cointegration, ARDL model and VECM Granger causality techniques to analyze the links between the variables. We also use the DOLS, FMOLS and CCR mechanisms to estimate the long-run parameters. The paper finds that the FKC is valid for China's economy in the long run. Technological innovation positively affects the urban-rural income gap, while there is an inverted-U shaped between financial development and the urban-rural income gap. The relationship between financial development and the urban-rural income gap is bi-directional causality. Technological innovation and the urban-rural income gap cause each other. Empirical results suggest a twofold policy meaning: i) to further the financial system and ii) to eliminate the adverse impacts of technological innovations on income distribution.

The relationship between income inequality and financial development: Is the financial kuznets curve valid in middle-income countries?

Income Equality is one of the most significant ongoing problems on the national and global scales. It is accepted that Income Equality has many causes and is a social problem encountered by countries on both national and international levels. In terms of its consequences, it is seen to create negative situations including low growth rates, increased inequality of social opportunities in various areas such as health, education, nutrition and housing, and poverty. While fields such as development economics, fiscal policy and social policy are employed in terms of proposing solutions to Income Equality, it is argued that increased Financial Development would also contribute to the solution to this issue. The aim of this study is to test the validity of the Financial Kuznets Curve hypothesis. The study covers the period 2002-2018. 21 middle-income countries were used and analyzes were made using panel data. According to the analysis made by Fixed Effects, Pooled OLS and Two-Stage System GMM methods, an inverse U relationship was found between Financial Development indicators and Income Equality. In other words, it was concluded that the Financial Kuznets Curve hypothesis is valid in the 21 middle-income countries examined in this study. Accordingly, Financial Development can be considered as an important tool for reducing Income Equality.

Relationship Between Financial Development And Income Inequality For Turkey And Selected Countries With Similar Economy

Purpose: The study's primary purpose is to investigate the validity of the Financial Kuznets Curve hypothesis for 15 selected upper and middle-income countries in terms of middle and upper-income group countries. In this context: Income inequality using annual data for the period 2002-2018 of 15 countries, including Turkey, Brazil, Belarus, Armenia, Ecuador, Colombia, Costa Rica, Dominican Republic, Georgia, Mexico, Kazakhstan, Paraguay, Peru, Russian Federation and Thailand. Methodology: The relationship between income inequality and financial development was examined by panel data analysis. At the same time, as in similar studies in the literature, growth, inflation and foreign trade variables, which are among the main variables related to the subject, were also included in the research. Findings: As a result of the findings, results were obtained that support the inverted-U hypothesis between income inequality and financial development.

Is there any financial kuznets curve in Jordan? a structural time series analysis

Is there any financial kuznets curve in Jordan? a structural time series analysis

Validity of the Financial Kuznets Curve in Newly Industrialized Countries

Çalışmada, yeni sanayileşen ülkelerde 1987-2019 dönemi için Finansal Kuznets Eğrisi hipotezinin geçerliliği araştırılmıştır. Bu doğrultuda finansal gelişme ve gelir eşitsizliği arasındaki ilişki panel veri yöntemi kullanılarak incelenmiş, Parks-Kmenta ve Beck-Katz tahminleri gerçekleştirilmiştir. Elde edilen bulgular neticesinde yeni sanayileşen ülkelerde Finansal Kuznets Eğrisi hipotezinin geçerli olduğu, finansal gelişme ile gelir eşitsizliği arasında ters-U ilişkisinin varlığı tespit edilmiştir. Buna göre, yeni sanayileşen ülkelerde finansal gelişme belirli bir eşik düzeyine kadar gelir eşitsizliğini arttırmakta, bu eşik düzeyinden sonra gelir eşitsizliğini azaltmaktadır. Diğer taraftan kişi başına GSYH ve kişi başına GSYH karesi değişkenleri kontrol değişken olarak modele dahil edilmiş ve yeni sanayileşen ülkelerde klasik Kuznets Eğrisi hipotezinin de geçerli olduğu, kişi başına gelir ile gelir eşitsizliği arasında ters-U ilişkisinin olduğu sonucuna ulaşılmıştır. Yeni sanayileşen ülkelerde kişi başına gelir belirli bir eşik düzeyine kadar gelir eşitsizliğini arttırmakta, bu eşik düzeyinden sonra gelir eşitsizliğini azaltmaktadır.

Do Financial and Economic Development Have an Impact on Income Inequality? A Study on Bangladesh

This research attempts to determine why individuals are unable to achieve their fundamental necessities despite increased financial and economic growth by investigating the relationship between financial and economic development with income disparity.Alternatively, this paper examines, from the viewpoint of Bangladesh, the implications of the Financial Kuznets Curve hypothesis, a theory established in three phases based on Kuznets’s seminal 1955 work. The time series data of nine elements over the 28 years from 1993-94 to 2020-21 has been used in the study. The study employs the Autoregressive Distributed Lag method (ARDL)and Granger Casualty Test to identify the effect of financial and economic development on income inequality in Bangladesh. Principal Component Analysis (PCA) has been used to develop indicators for financial development and economic development. The study reveals that financial and economic development affect income inequality in Bangladesh; in fact, they increased income inequality over the years in this country. This indicates that the FKC hypothesis holds in Bangladesh, as FKC states that Financial and economic development constitutes a converse U-shaped relationship with income inequality, meaning that income inequality increases during the primary phase and continues in the medium phase of development. As Bangladesh is going through a development phase, income inequality is increasing.

Financial Development, Technological Innovation and Income Inequality: Time Series Evidence from Turkey

The main aim of the study is to analyze the link between technological innovation and income inequality for Turkey in terms of financial Kuznets curve (FKC) hypothesis. The study uses time-series data from 1987 to 2018. We employ the Hatemi-J cointegration, ARDL bounds test and VECM Granger causality techniques to investigate the relations between the variables. We also employ the DOLS, FMOLS and CCR approaches to estimate the long-run parameters. The results reveal that the series are cointegrated under the structural breaks. The results also reveal that the FKC is valid for Turkish economy in the long run. Technological innovation positively affects income inequality while economic growth is negatively linked with income inequality. There exists a bi-directional causal linkage between financial development and income inequality. Technological innovation and income inequality cause each other. In addition, economic growth causes income inequality. Empirical results suggest a twofold policy implication: i) improvement of the financial system and ii) to eliminate the adverse effects of technological innovations on income distribution.

금융쿠즈네츠커브 가설과 거버넌스 연계론

금융쿠즈네츠커브 가설과 거버넌스 연계론

NEXUS BETWEEN FINANCIAL DEVELOPMENT AND INCOME INEQUALITY BEFORE PANDEMIC COVID-19: DOES FINANCIAL KUZNETS CURVE EXIST IN MALAYSIA, INDONESIA, THAILAND AND PHILIPPINES?

This study offers new insights for policymakers to reduce income inequality, thus ensuring economic growth which greatly benefits the poor segment of population and directing financial sector to provide easy access to financial resources for lower income group at cheaper cost. Bound test was applied to examine the long-run and short-run relationships based on the sample period beginning from 1970 until 2016. The results confirmed the existence of a long-run relationship between the variables. Financial development in Malaysia, Indonesia and Thailand had successfully reduced income inequality, however, a different effect was recorded in the Philippines where income distribution was worsened. Furthermore, economic growth brought positive effect to income distribution in Malaysia and Indonesia, but not for Thailand and the Philippines. Inflation, trade openness and foreign direct investment, provided mixed results for all countries. Among the policies recommendation for this paper are there should be more easy accessibility for entrepreneurs to reach the wide range of financial services including conventional and Islamic financial products, the expansion of capital market, as well as giving proper attention to the financial sector. Besides, granting the access to capital markets for low income groups or underprivileged individuals might be helpful to them either by developing entrepreneurial skill or involvement in productive activities and receive better salaries. This policies will gives insight to the policymakers as it the outcome is based on the spread of pandemic Covid-19 that hit the world.Keywords: Financial Development; Income Inequality; ASEAN-4; Financial Kuznets CurveJEL Classifications: G10; F62DOI: https://doi.org/10.32479/ijeep.10616

Financial Development and Income Inequality Relationship: Analyzing Financial Kuznets Curve with ARDL Boundary Test in Turkey

In this study, the relationship between the financial development and the income inequality in Turkey is investigated by testing the validity of Financial Kuznets Curve Hypothesis. To examine this relationship for the period of 1987 2017, the variables of the public final consumption expenditures, the modern sector share, the inflation and the human capitalare also added to the model setted as control variables, and the long term relationships among the variables are analyzed by using the ARDL (The Autoregressive Distributed Lag) Boundary Test approach. Empirical evidence refers to the validity of the Financial Kuznets Curve Hypothesis in Turkey, in other words, there is an inverse U shaped relationship between the financial development and the income inequality. Accordingly, while the financial development raises the inequality in income distribution to a certain threshold level, it reduces the inequality after this threshold level in Turkey. Moreover, in the long run increases in the modern sector share, the public final consumption expenditures and in the trade openness help to reducing income inequality but increases in the inflation and in the human capital make worse income inequality. Keywords: Financial Development, Income Inequality, Financial Kuznets Curve, ARDL Boundary Test. DOI: 10.7176/JSTR/7-01-07

FINANCIAL KUZNETS CURVE, GLOBALISATION AND INCOME DISTRIBUTION: THE ELEMENTS OF TRIPARTITE RELATIONSHIP

This paper reexamines the empirical validity of financial Kuznets hypothesis in terms of looking for functional income distribution and economic globalisation for OECD countries over the 1980-2017 period. In doing so, the current study applies the panel fixed-effects and the system-GMM approaches to show that the estimates are complemented with the traditional assumptions on the financial Kuznets hypothesis. From a functional income distribution perspective, the empirical findings highlight the importance of financial sector development in reducing the income distribution between labor and capital. Also, the paper then provides new evidence on economic globalisation dynamics in exacerbating a more uneven distribution of income. Finally, the empirical findings imply that if any economic unit opens its borders without developing its financial sector, the labor’s share accruing in national income would be narrowed on behalf of capital over time.

Finansal Gelişmenin Gelir Eşitsizliği Üzerindeki Etkileri: Finansal Kuznets Eğrisi Hipotezi Türkiye İçin Geçerli mi?

Financial development enables individuals to have better access to financial resources. As access to financial resources increases, income levels also increase. Equal distribution of the increase in income among individuals is an important research topic. Income inequality is generally measured by the gini coefficient. This paper aims to investigation of the relationship between financial development, inflation, urbanization, per capita gross fixed capital formation and Gini coefficient in case of Turkey, using Bayer-Hanck combined cointegration test, canonical cointegrating regression (CCR) and fully modified least square (FMOLS) estimators covering the period of 1987-2016. The results from the Bayer-Hanck test revealed that these variables are cointegrated. The estimated long-term coefficients obtained by the CCR and FMOLS show that inflation and gross fixed capital formation increases income inequality, whereas urbanization decreases this inequality in the long-term. In addition, the positive coefficient of financial development and the negative coefficient of the square of financial development confirm that the financial Kuznets curve hypothesis is valid for Turkey.