About this article
Published Online: Oct 03, 2020
Page range: 84 - 100
DOI: https://doi.org/10.2478/ceej-2020-0006
Keywords
© 2020 Ewa Weychert, published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Variable definition and source
| Gini | Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy |
| q1–q5 | Express the share of total income going to each fifth of the population according to the size of their incomes. The first group is the poorest 20%, while the fifth quintile is the richest 20%; data from WIID |
| Controlled independent variables | |
| Population | Annual population growth rate for year |
| Trade | Trade is the sum of exports and imports of goods and services measured as a share of gross domestic product |
| Govt | General government final consumption expenditure (% of GDP) |
| GDP | GDP per capita growth (annual %) |
| Financial independent variables | |
| Credit | Domestic credit to private sector (% of GDP) |
| Bank noninterest income to total income (%) | Bank's income that has been generated by noninterest related activities as a percentage of total income (net-interest income plus noninterest income). Noninterest related income includes net gains on trading and derivatives, net gains on other securities, net fees and commissions and other operating income |
| ATMs per 100,000 adults | Number of ATMs per 100,000 adults |
| Bank concentration (%) | Assets of three largest commercial banks as a share of total commercial banking assets. Total assets include total earning assets, cash and due from banks, foreclosed real estate, fixed assets, goodwill, other intangibles, current tax assets, deferred tax assets, discontinued operations and other assets |
| Foreign banks among total banks (%) | Percentage of the number of foreign owned banks to the number of the total banks in an Economy. A foreign bank is a bank where 50% or more of its shares are owned by foreigners |
Model 1 for the Gini Coefficient
| Domestic credit to private sector % GDP | 0.02 (0.01) | 0.03 | 0.03 | ||||
| ATM (access) | −0.05 | −0.05 | −0.06 | ||||
| Foreign banks (depth) | −0.12 | −0.14 | −0.13 | ||||
| Bank concentration (stability) | 0.01 (0.02) | 0.03 (0.02) | |||||
| Bank noninterest income (efficiency) | 0.03 | 0.02 (0.01) | |||||
| GDP growth | 0.12 (0.09) | 0.01 (0.08) | 0.04 (0.09) | 0.12 (0.09) | 0.07 (0.09) | 0.05 (0.08) | |
| Trade | 0.01 (0.01) | 0.01 (0.01) | 0.01 (0.01) | 0.003 (0.01) | 0.01 (0.01) | 0.0000 (0.01) | |
| Population growth | −0.22 (0.49) | −0.06 (0.43) | −0.42 (0.51) | 0.16 (0.51) | −0.02 (0.49) | −0.22 (0.44) | |
| Government spending | −0.36 | −0.42 | −0.27 | −0.28 | −0.29 | −0.39 | −0.42 |
| Observations | 186 | 177 | 177 | 179 | 185 | 165 | 169 |
| 0.09 | 0.22 | 0.18 | 0.08 | 0.09 | 0.44 | 0.41 | |
| Adjusted | −0.31 | −0.13 | −0.18 | −0.34 | −0.31 | 0.14 | 0.15 |
| 2.47 | 7.02 | 5.25 | 2.08 | 2.54 | 9.41 | 20.37 | |
Model 2 for income growth by quintile
| Foreign banks (depth) | 0.03 | 0.03 | 0.03 | 0.02 | −0.10 |
| ATM (access) | 0.01 | 0.01 | 0.01 | 0.01 | −0.05 |
| Bank noninterest income (efficiency) | 0.001 (0.002) | −0.002 (0.002) | −0.003 (0.002) | −0.004 | 0.01 (0.01) |
| Bank concentration (stability) | −0.002 (0.002) | −0.01 | −0.01 | −0.004 (0.003) | 0.02 |
| Domestic credit to private sector % GDP | −0.004 | −0.005 | −0.01 | −0.004 | 0.02 |
| GDP growth | 0.01 | −0.003 (0.01) | −0.01 | −0.02 | 0.02 (0.02) |
| Trade | −0.004 | 0.0004 (0.002) | 0.003 (0.002) | 0.005 | −0.003 (0.01) |
| Population growth | 0.22 | 0.06 (0.06) | −0.01 (0.07) | 0.03 (0.08) | −0.31 (0.23) |
| Government spending | 0.06 | 0.09 | 0.10 | 0.08 | −0.33 |
| Observations | 361 | 361 | 361 | 361 | 361 |
| 0.30 | 0.33 | 0.29 | 0.16 | 0.31 | |
| Adjusted | 0.16 | 0.20 | 0.16 | −0.004 | 0.17 |
| 14.44 | 16.26 | 13.98 | 6.39 | 15.01 | |
Descriptive statistics
| Trade | 96.26 | 57.15 | 22.11 | 349.24 | 469 |
| Pop | 0.72 | 0.87 | −2.26 | 2.89 | 468 |
| Credit | 82.78 | 52.98 | 0.19 | 312.12 | 451 |
| GDP | 1.97 | 3.76 | −14.56 | 12.92 | 469 |
| Govt | 17.50 | 4.63 | 6.21 | 27.94 | 469 |
| Bank.concentration | 67.07 | 21.24 | 21.70 | 100 | 449 |
| Foreign.banks | 41.70 | 27.38 | 0 | 96 | 447 |
| ATM | 69.83 | 41.10 | 3.05 | 222.82 | 411 |
| Bank.noninterest.income | 37.76 | 14.63 | 2.28 | 84.51 | 467 |
| Gini_reported | 38.09 | 9.39 | 23.72 | 60.79 | 469 |
| q1 | 6.41 | 2.13 | 1.90 | 10.23 | 469 |
| q2 | 11.22 | 2.46 | 5.49 | 14.88 | 469 |
| q3 | 15.57 | 2.15 | 9.97 | 18.31 | 469 |
| q4 | 21.84 | 1.31 | 18.26 | 24.63 | 469 |
| q5 | 44.97 | 7.72 | 34.02 | 64.29 | 469 |
Comparison of long and short run having as dependent variable Gini coefficient
| Foreign.banks | −0.14 | −0.12 |
| ATM | −0.05 | −0.06 |
| Bank.noninterest.income | 0.02 (0.01) | 0.01 (0.01) |
| Bank.concentration | 0.03 (0.02) | 0.02 |
| Credit | 0.03 | 0.02 |
| GDP | 0.05 (0.08) | 0.004 (0.03) |
| Trade | 0.0000 (0.01) | 0.0002 (0.01) |
| Pop | −0.22 (0.44) | −0.49 |
| Govt | −0.39 | −0.39 |
| Observations | 165 | 361 |
| 0.44 | 0.32 | |
| Adjusted | 0.14 | 0.19 |
| 9.41 | 15.85 | |
Review of literature
| 1 | 91 countries for the period 1960–1995 | Y = log of Gini; X = private credit to GDP, bank asset; GMM; FE | No evidence of an inverted-U-shaped relation between financial sector development; consistent with the theoretical models in | Decrease ⇣ | |
| 2 | 16 countries over the entire twentieth century | Y = quintiles; X = Bank deposits, Stock market capitalisation, total market capitalisation; first difference estimator | Financial development is also pro-rich; it increases income inequality | Increase ⇣ | |
| 3 | 51 countries over a 23-year period from 1981 to 2003 | Y = Gini, quintiles; X = portfolio debt and equity flows, FDI, of private credit to GDP | Financial globalisation cause increase in inequality | Increase ⇣ | |
| 4 | A sample of 27 European Union member states from 1995 to 2012 | Y = S80/S20 ratio, Gini; X = stock market capitalisation and bank assets to GDP | An increase in the market-based component of a financial system leads to higher income inequality measured by the Gini coefficient | Increase ⇣ | |
| 5 | A sample of 121 countries covering 1975–2005 | Y = Gini; X = private credit to GDP, economic freedom, banking regulatory practices, banking crisis + interactions with institution; dynamic panel model instead of OLS cross-section regressions in our main analysis; G2SLS | All finance variables increase income inequality | Increase ⇣ | |
| 6 | 138 developed and developing countries over the years 1960–2008 | Y = Gini gross and net; X = credit-to-GDP; GMM; FE | Financial development has a positive effect on income inequality | Increase ⇣ | |
| 7 | 91 countries for which information on bank regulations is available over the period 1973–2005 | Y = Theil index, Gini, quintiles; X = ratio of bank deposits to bank credit, bank crisis, political orientation of the government, overall political-liberalisation processes, quality institutions, transparency (the inverse of Corruption); FE; 2SLS | Overall liberalization of banking systems decreases the Gini coefficient and the Theil index significantly | Decrease ⇣ | |
| 8 | 92 countries 1960–2000 | Y = Gini, quintiles; X = private credit to GDP, commercial central bank; GMM; FE | Financial development reduces income inequality | Decrease ⇣ | |
| 9 | Sample of 143 countries from 1961 to 2011 | Y = Gini; X = bank accounts per 1,000 adults, value traded of the top 10 trading companies to total value traded, private credit to GDP, the ratio of regulatory capital to risk-weighted assets, interest rate control, entry barriers, and privatisation, the ratio of consolidated foreign claims of BIS-reporting banks to GDP, GMM; FE | Access to finance, financial efficiency and stability reduce poverty and inequality; financial liberalisation increase inequality | Decrease ⇣ |