Channels of financial sector development and the inequality widening (narrowing) hypothesis – evidence from India
Journal of Financial Economic Policy
ISSN: 1757-6385
Article publication date: 15 January 2020
Issue publication date: 20 October 2020
Abstract
Purpose
The study aims to understand how various channels of financial sector development affect the income inequality across Indian states and whether the inequality widening or narrowing hypothesis of financial development may be confirmed at a sub-national level.
Design/methodology/approach
Using state-wise annual data for the period from 1999-2000 to 2011-2012, a panel data analysis using generalised method of moments (GMM) estimator is conducted for a sample of 15 major Indian states.
Findings
The results confirm the inequality widening hypothesis of financial sector development in India. While each channel affects different section of the population in a different way, their overall effect on the income inequality remains unfavourable.
Originality/value
This paper is the first ever study to provide a comparative empirical evidence for the effect of each channel of financial development on the income inequality in India. The results provide significant insights to the policymakers, practitioners and academia in the financial sector with respect to the efficiency of each channel of financial development in bridging the gap between the poor and rich.
Keywords
Citation
Mehta, A. and Bhattacharya, J. (2020), "Channels of financial sector development and the inequality widening (narrowing) hypothesis – evidence from India", Journal of Financial Economic Policy, Vol. 12 No. 4, pp. 593-608. https://doi.org/10.1108/JFEP-03-2019-0049
Publisher
:Emerald Publishing Limited
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