Inequality and financial development: Evidence from selectedMENAregion countries

Abstract

The paper investigates the impact of financial development on income inequality for selected 11 MENA region countries over the period 1990 to 2015. Pooled Mean Group Estimation of dynamic heterogeneous panels is implemented to examine the relationship between the variables. Furthermore, we employed panel cointegration to test for the existence of a long-run relationship between the variables. The findings shows a significant linear long-run negative relationship between financial development and income inequality. The outcomes are in consistency with the inequality-narrowing hypothesis by Banerjee and Newman (1993), Galor and Zeria (1993) and Mookherjee and Ray (2003). Thus we conclude that financial development is an important determinant for inequality reduction for these countries.