Is There a Reverse U-Shaped Relation between Financial Development and Income Distribution? Comparison between Developed Countries and Transforming Countries
Affiliation(s)
1 School of Economics, Central University of Finance and Economics, Beijing, China. 2 Department of Credit Examination and Approval, Agriculture Bank of China, Head Office, Beijing, China.
1 School of Economics, Central University of Finance and Economics, Beijing, China. 2 Department of Credit Examination and Approval, Agriculture Bank of China, Head Office, Beijing, China.
ABSTRACT
Researching relation between financial development and income distribution is always a hotspot issue of theory. In 1990s, Greenwood and Jovanovic proposed the reverse U-shaped relation model between financial development and income distribution. Related scholars conducted empirical analysis accordingly but there was always no consistent conclusion. In this paper, whether there is a reverse U-shaped relation between financial development and income distribution is verified via different country types. USA, UK and Germany are taken as representatives of developed country; China, Russia and Brazil are transforming countries to respectively carry out empirical analysis to relation between financial development and income distribution, and it is found that: there is no reverse U-shaped relation between financial development and income distribution in developed countries, nevertheless there is an apparent reverse U-shaped relation in transforming countries.
Researching relation between financial development and income distribution is always a hotspot issue of theory. In 1990s, Greenwood and Jovanovic proposed the reverse U-shaped relation model between financial development and income distribution. Related scholars conducted empirical analysis accordingly but there was always no consistent conclusion. In this paper, whether there is a reverse U-shaped relation between financial development and income distribution is verified via different country types. USA, UK and Germany are taken as representatives of developed country; China, Russia and Brazil are transforming countries to respectively carry out empirical analysis to relation between financial development and income distribution, and it is found that: there is no reverse U-shaped relation between financial development and income distribution in developed countries, nevertheless there is an apparent reverse U-shaped relation in transforming countries.
KEYWORDS
Financial Development, Income Distribution, Reverse U-Shaped Relation, Developed Countries, Transforming Countries
Financial Development, Income Distribution, Reverse U-Shaped Relation, Developed Countries, Transforming Countries
Cite this paper
Liu, Z. and Wang, Q. (2015) Is There a Reverse U-Shaped Relation between Financial Development and Income Distribution? Comparison between Developed Countries and Transforming Countries. Open Journal of Social Sciences, 3, 201-209. doi: 10.4236/jss.2015.33030.
Liu, Z. and Wang, Q. (2015) Is There a Reverse U-Shaped Relation between Financial Development and Income Distribution? Comparison between Developed Countries and Transforming Countries. Open Journal of Social Sciences, 3, 201-209. doi: 10.4236/jss.2015.33030.
References
[1] Kuznets, S. (1955) Economic Growth and Income Inequality. American Economic Review, 5, 1-28. [2] Greenwood, J. and Jovanovic, B. (1990) Financial Development, Growth and the Distribution of Income. Journal of Political Economy, 5, 1076-1107. http://dx.doi.org/10.1086/261720 [3] Aghion, P. and Bolton, P. (2007) A Trickle-Down Theory of Growth and Development with Debt Overhang. Review of Economic Studies, 64, 51-172. [4] Matsuyama, K. (2000) Endogenous Inequality. Review of Economic Studies, 67, 743-759. http://dx.doi.org/10.1111/1467-937X.00152 [5] Clark, G., Xu, L.X. and Zou, H.F. (2003) Finance and Income Inequality: Test of Alternative Theories. World Bank Policy Research Working Paper 2984. http://dx.doi.org/10.2139/ssrn.364160
[1] Kuznets, S. (1955) Economic Growth and Income Inequality. American Economic Review, 5, 1-28. [2] Greenwood, J. and Jovanovic, B. (1990) Financial Development, Growth and the Distribution of Income. Journal of Political Economy, 5, 1076-1107. http://dx.doi.org/10.1086/261720 [3] Aghion, P. and Bolton, P. (2007) A Trickle-Down Theory of Growth and Development with Debt Overhang. Review of Economic Studies, 64, 51-172. [4] Matsuyama, K. (2000) Endogenous Inequality. Review of Economic Studies, 67, 743-759. http://dx.doi.org/10.1111/1467-937X.00152 [5] Clark, G., Xu, L.X. and Zou, H.F. (2003) Finance and Income Inequality: Test of Alternative Theories. World Bank Policy Research Working Paper 2984. http://dx.doi.org/10.2139/ssrn.364160