Nonlinearity in the financial development-income inequality nexus

Dong Hyeon Kim, Shu Chin Lin

Research output: Contribution to journalArticlepeer-review

129 Citations (Scopus)


The majority of theoretical studies on the relationship between income inequality and financial development argue that financial deepening might be a feasible instrument for improving income distribution. This paper finds that the prediction crucially depends on the stages of financial development that the country is undergoing. The benefits of financial depth only occur if the country has reached a threshold level of financial development. Below this critical value, financial development counteracts income inequality. Our policy implication is that a minimum level of financial development is a necessary precondition for achieving reduction in income inequality through financial development.

Original languageEnglish
Pages (from-to)310-325
Number of pages16
JournalJournal of Comparative Economics
Issue number3
Publication statusPublished - 2011 Sept
Externally publishedYes

Bibliographical note

Funding Information:
We are grateful to Bruce E. Hansen for sharing GAUSS code. This work was supported by the Sungshin Women’s University Research Grant of 2010-2-21-001/1. Any remaining errors are our own responsibility.


  • Financial development
  • Income inequality
  • Instrumental variables
  • Threshold regressions

ASJC Scopus subject areas

  • Economics and Econometrics


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