Publication:
Financialization of the economy and income inequality in selected OIC and OECD countries: the role of institutional factors
Abstract
Throughout the world, the income gap between the rich and the poor has continued to widen. It has been reported that income inequality is spiraling out of control and this is a dangerous trend that pose significant threat to the global sustainability. Several factors have contributed to this widening income gap, among which is financialization of the economy (much faster growth of the financial sector than in the real sector of the economy through rapid growth of debt and large increases in financial sector profits). The aim of the study is to examine the prevalence of income inequality in Organization for Islamic Countries, (OIC) countries and examine how it differs from Organization for Economic Corporations and Development (OECD) countries. In this study, Generalize Method of Moments (GMM) was used in the data analysis. The study employs two sets of financialization data. The first financialization indicators are: Bank profit (BPROF), market capitalization of listed firms (MCAP), stock value traded (STD) and financialization aggregate (FIN_AGG). While the second indicators are: Rate of growth of finance relative to real GDP (RFING), rate of growth of debt relative to Gross domestic product (GDP) (RDEBT). Private sector credit (PCR) and financialization aggregate (FIN_AGG). For a robust test, the study employs securities under banks asset (SEC). Using overall sample (data from both countries OIC and OECD), the result of the study confirms financialization is one of the major causes of income inequality in the studied countries. Also, the findings revealed that income inequality is higher in OIC than in OECD countries. Using the first financialization dataset, the study reveals a more detrimental effect of financialization on inequality in the overall sample than in OIC countries.
Keywords
Financialization , Growth nexus , Inequality , OIC countries , OECD countries
Citation
Muhammad Abdulkarim, F. (2016). Financialization of the economy and income inequality in selected OIC and OECD countries: the role of institutional factors (Doctoral dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/2410
Publisher
INCEIF
Available in physical copy and downloadable format (Call Number: t HC 110 I5 M952)