Financial development, international financial integration, and income inequality: an emerging markets perspective

Official URL: https://dx.doi.org/10.1016/j.ribaf.2025.102917

This study examines the effect of financial development and financial integration on income inequality in 31 emerging and developing countries over the period 2000–2019. The empirical analysis in this study employs the Generalized Method of Moments (GMM) approach. Our findings show that banking sector development is associated with increased income inequality, whereas stock market development is associated with reduced inequality, particularly when both banking and stock market indicators are simultaneously included in the regressions. This study contributes to the literature by providing evidence on the critical role of both bank-based and market-based development measures in addressing the financial sector's influence on income inequality. We further show that financial openness mitigates income inequality, contributing to a relatively understudied area of literature.