Nonlinear Dynamics in the Finance-Inequality Nexus in China-CHNS Data

Mohammad Masudur Rahman, Guan Fuquan, Laila Arjuman Ara
2019 Sustainability  
This paper empirically investigates the effects of financial development on incomes of Chinese residents particularly within various income groups using data from six provinces by applying the Quantile Regression model. The Greenwood and Jovanovich hypothesis that illustrates the inverted U shaped relationship between financial development and income inequality is tested. This empirical study demonstrates that financial development has a positive but non-linear effect on the annual income of
more » ... ividuals from various income groups at different quantiles. The effect is an inverted U or Kuznets effect indicating an increase at first and then a drop. As for the distribution of the impact on various income groups, the low-income group is under the most dominant influence followed by the high-income group with the middle-income groups receiving relatively smaller influence. Findings indicate that promoting balanced financial development would help to ease the income gap between Chinese residents.
doi:10.3390/su11010191 fatcat:tdje2sw47vda7ot6pcpxbiy4b4