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Financial depth, income inequality, and economic transition
Author(s) -
Chu ChiYang,
Jiang Mingming
Publication year - 2021
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12523
Subject(s) - economics , inequality , nexus (standard) , economic inequality , income inequality metrics , constraint (computer aided design) , china , finance , econometrics , geography , mechanical engineering , mathematical analysis , mathematics , archaeology , computer science , engineering , embedded system
This article examines the evolving finance–inequality nexus during the process of economic transition. We estimate the varying marginal effects of financial depth on income inequality in every state of the transition process. Using China as an example of transition economies, we establish the causal effects of financial depth on urban income inequality and examine the estimation biases when the evolving relationship is not appropriately characterized. Along the transition process of the Chinese economy, we identify a robustly asymmetric and roughly inverted‐L shaped relationship between financial depth and urban inequality. We find that financial depth alone accounts for 11–28% of the overall variations of urban income inequality and the marginal impacts of financial depth change with the degree of credit constraint, the fraction of state ownership, and the level of economic development.