Panel Data Analysis of Financial Development, Economic Growth and Rural-Urban Income Inequality

Sehrawat, Madhu (2016) Panel Data Analysis of Financial Development, Economic Growth and Rural-Urban Income Inequality. International Journal of Social Economics, 43 (10). pp. 998-1015.

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Purpose – The purpose of this paper is to examine the relationship between financial development and rural-urban income inequality (INQ) in South Asian Association for Regional Cooperation (SAARC) countries using panel data from 1986-2012. Design/methodology/approach – The stationarity properties are checked by the LLC and IPS panel unit root tests. The paper applied the Pedroni’s panel co-integration test to examine the existence of the long-run relationship and coefficients of co-integration are examined by fully modified ordinary least squares. The short-term and long-run causality is examined by panel Granger causality. Findings – The results of Pedroni co-integration test indicate that there exists a long-run relationship among the variables. The findings suggest that financial development increases rural-urban inequality whereas trade openness reduces rural-urban inequality. The empirical results of panel Granger causality indicate evidence of short-run causality confirms that economic growth and financial development causes rural-urban INQ. Research limitations/implications – The present study recommends for appropriate economic and financial reforms focusing on financial inclusion to reduce rural-urban INQ in SAARC countries.Financial policies geared toward agriculture and rural population should be adopted to reduce the prevailing rural-urban INQ in SAARC region. Originality/value – Till date, there is hardly any study exploring the causal relationship between financial development and rural-urban INQ for SAARC countries by using panel co-integration and causality techniques. So the contribution of the paper is to fill these research gaps in the literature.

Item Type: Article
Uncontrolled Keywords: Financial Development; Panel Co-Integration; Panel Granger Causality; Fully Modified OLS (FMOLS); Rural-Urban Income Inequality
Subjects: Finance
Depositing User: Ms. Sachitha R
Date Deposited: 11 Sep 2018 06:17
Last Modified: 14 Feb 2019 09:00

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