Financial Structure and Income Inequality in Iran

Document Type : Research Paper

Authors

1 Phd Student of Department of Economics and Management, Shiraz Branch, Islamic Azad University

2 Assistant Professor of Department of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.

10.30465/jnet.2023.43944.1978

Abstract

This paper investigates the effect of the banking structure on income inequality in Iran. For the banking structure, three indicators of assets, credits, and foreign sector have been calculated and a regression model has been estimated with the Auto-Regressive Distributed Lags approach for the period of 1979-2016. The findings reveal that Iran's undeveloped financial system, which is relationship-oriented like other bank-based financial systems, has often had a counter-development function. So that among the three investigated indicators, the effect of two indicators of the structure of assets and credits of the banking system on income inequality is significantly positive and has caused an increase in income inequality. In contrast, the effect of the structure of the international transactions index of the banking system is significantly negative, which supports the positive effects of the international integration of Iran's financial system. In this way, the increase in international banking transactions can strengthen the development function of “relationship orientation” in the banking system and subsequently reduce income inequality. In contrast, the effect of the structure of the international transactions index of the banking system is significantly negative, which supports the positive effects of the international integration of Iran's financial system. In this way, the increase in international banking transactions can strengthen the development function of “relationship orientation” in the banking system and subsequently reduce income inequality.

Keywords

References

ابوترابی، م. ع. و احمدیان یزدی، ف. (1398). توسعه مالی، رانت منابع طبیعی و سرمایه فیزیکی در ایران: نفرین یا موهبت منابع؟. بررسی مسائل اقتصاد ایران، 6(1)، 1-17.
ابوترابی، م. ع.؛ حاج امینی، م. و توحیدی، س. (1400الف). عملکرد سیستم مالی و رشد اقتصادی در ایران: برخی واقعیت‏های سبک‏وار. دوفصلنامه بررسی مسائل اقتصاد ایران، 7(2)، 1-31.
ابوترابی، م. ع.؛ حاج امینی، م. و توحیدی، س. (1400ب). تأثیر ساختار مالی و بانکی بر رشد بخش واقعی در ایران. فصلنامه پژوهش‏های اقتصادی ایران، 26(87)، 165-194.
ابوترابی، م. ع. و فلاحی، م. ع. (1392). بررسی مقایسه‏ای نقش سیستم بانکی و بازار سهام در رشد اقتصادی: مطالعه موردی کشورهای منا. دو فصلنامه اقتصاد پولی، مالی، 6، 29-47.
محمدزاده، ف. (1399). تأثیر ساختار مالی بانک‏محور و بازارمحور بر انباشت سرمایه انسانی. پایان‏نامه کارشناسی ارشد، دانشگاه علامه طباطبایی.
مکیان، س. ن. و ایزدی، م. ر. (1394). بررسی رابطه توسعه نظام مالی با رشد اقتصادی. پژوهش‏های اقتصادی ایران، 20(62)، 139-162.
نیکوقدم، م. (1388). بررسی و تبیین راهکارهای جذب درآمدهای نفتی در اقتصاد ایران با استفاده از تجربیات کشورهای منتخب. پایان‏نامه کارشناسی ارشد، دانشگاه فردوسی مشهد: مشهد، ایران.
Aghion, P., & Bolton, P. (1997). A Trickle-Down Theory of Growth and Development. Review of Economic Studies, 64, 151-162.
Aggarwal, R., & Goodell, J. W. (2009). Markets and Institutions in Financial Intermediation: National Characteristics as Determinants. Journal of Banking & Finance, 33(10), 1770-1780.
Allen, F., & Gale, D. (1999). Diversity of Opinion and Financing of New Technologies. Journal of Financial Intermediation, 8(1-2), 68-89.
Almeida, H., Campello, M., & Weisbach, M. S. (2004). The Cash Flow Sensitivity of Cash. The Journal of Finance, 59(4), 1777-1804.
Álvarez, R., & Bertin, M. J. (2016). Banking Competition and Firm-level Financial Constraints in Latin America. Emerging Markets Review, 28(C), 89-104.
Atkinson, A. B. (1997). Bringing Income Distribution in from the Cold. The Economic Journal, 107(441), 297-321.
Atkinson, A. B. (2015). Inequality: What Can Be Done?. Harvard University Press: Cambridge and London.
Banerjee, A. V., & Newman, A. F. (1993). Occupational Choice and the Process of Development. Journal of Political Economy, 101(2), 274-298.
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2004). Finance, Inequality, and Poverty: Cross-Country Evidence (No. w10979). National Bureau of Economic Research.
Beck, T., Levine, R., & Levkov, A. (2010). Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States. The Journal of Finance, 65(5), 1637-1667.
Black, S. E., & Strahan, P. E. (2002). Entrepreneurship and Bank Credit Availability. The Journal of Finance, 57(6), 2807-2833.
Bonfiglioli, A. (2012). Investor Protection and Income Inequality: Risk Sharing vs Risk Taking. Journal of Development Economics, 99(1), 92-104.
Carbo-Valverde, S., Rodriguez-Fernandez, F., & Udell, G. F. (2009). Bank Market Power and SME Financing Constraints. Review of Finance, 13(2), 309-340.
Castelló-Climent, A., & Doménech, R. (2021). Human Capital and Income Inequality Revisited. Education Economics, 29(2), 194-212.
Cetorelli, N., & Strahan, P. E. (2006). Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local US Markets. The Journal of Finance, 61(1), 437-461.
Charlton, A. (2008). Capital Market Liberalization and Poverty. In José Antonio Ocampo & Joseph Stiglitz, (Eds.), Capital Market Liberalization and Development, Oxford Press: New York, pp. 121-138.
Chen, T. C., Kim, D. H., & Lin, S. C. (2021). Nonlinearity in the Effects of Financial Development and Financial Structure on Unemployment. Economic Systems, 45(1), 100766.
Corak, M. (2013). Income Inequality, Equality of Opportunity, and Intergenerational Mobility. Journal of Economic Perspectives, 27(3), 79-102.
Delis, M. D., Hasan, I., & Mylonidis, N. (2020). Foreign Bank Ownership and Income Inequality: Empirical Evidence. Applied Economics, 52(11), 1240-1258.
De Grauwe, P., & Gerba, E. (2016). Stock Market Cycles and Supply Side Dynamics: Two Worlds, One Vision? (No. 1626). Banco de España.
Galor, O., & Moav, O. (2004). From physical to Human Capital Accumulation: Inequality and the Process of Development. The Review of Economic Studies, 71(4), 1001-1026.
Galor, O., & Zeira, J. (1993). Income Distribution and Macroeconomics. The Review of Economic Studies, 60(1), 35-52.
Gimet, C., & Lagoarde-Segot, T. (2011). A Closer Look at Financial Development and Income Distribution. Journal of Banking & Finance, 35(7), 1698-1713.
Greenwood, J., & Jovanovic, B. (1990). Financial Development, Growth, and the Distribution of Income. Journal of Political Economy, 98(5, Part 1), 1076-1107.
Hauswald, R., & Marquez, R. (2006). Competition and Strategic Information Acquisition in Credit Markets. The Review of Financial Studies, 19(3), 967-1000.
Hou, X., Li, S., & Wang, Q. (2018). Financial Structure and Income Inequality: Evidence from China. Emerging Markets Finance and Trade, 54(2), 359-376.
Hsieh, J., Chen, T. C., & Lin, S. C. (2019). Financial Structure, Bank Competition and Income Inequality. The North American Journal of Economics and Finance, 48(C), 450-466.
Kim, D. H., Lin, S. C., & Chen, T. C. (2016). Financial Structure, Firm Size and Industry Growth. International Review of Economics & Finance, 41, 23-39.
Kpodar, K., & Singh, R. (2011). Does Financial Structure Matter for Poverty? Evidence from Developing Countries (No. 5915). The World Bank.
Law, S. H., & Tan, H. B. (2009). The Role of Financial Development on Income Inequality in Malaysia. Journal of Economic Development, 34(2), 153.
Levine, R. (2002). Bank-based or Market-based Financial Systems: Which Is Better?. Journal of Financial Intermediation, 11(4), 398-428.
Levine, R., Levkov, A., & Rubinstein, Y. (2008). Racial Discrimination and Competition (No. w14273). National Bureau of Economic Research.
Liu, C., Fan, Y., Xie, Q., & Wang, C. (2022). Market-based versus Bank-based Financial Structure in China: From the Perspective of Financial Risk. Structural Change and Economic Dynamics, 62, 24-39.
Liu, G., Liu, Y., & Zhang, C. (2017). Financial Development, Financial Structure and Income Inequality in China. The World Economy, 40(9), 1890-1917.
Love, I., & Martínez Pería, M. S. (2015). How Bank Competition Affects Firms' Access to Finance. The World Bank Economic Review, 29(3), 413-448.
Marquez, R. (2002). Competition, Adverse Selection, and Information Dispersion in the Banking Industry. The Review of Financial Studies, 15(3), 901-926.
Moav, O. (2005). Cheap Children and the Persistence of Poverty. The Economic Journal, 115(500), 88-110.
Nabi, M. S. (2015). Equity-financing, Income Inequality and Capital Accumulation. Economic Modelling, 46(C), 322-333.
Pesaran H. M., and Persaran, B. (1997). Working with Microfit 4.0: Interactive Econometric Analysis. Oxford University Press: Oxford.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289-326.
Petersen, M. A., & Rajan, R. G. (1995). The Effect of Credit Market Competition on Lending Relationships. The Quarterly Journal of Economics, 110(2), 407-443.
Petersen, M. A., & Rajan, R. G. (2002). Does Distance Still Matter? The Information Revolution in Small Business Lending. The Journal of Finance, 57(6), 2533-2570.
Piketty, T. (2014). Capital in the Twenty-first Century. Harvard University Press.
Ryan, R. M., O'Toole, C. M., & McCann, F. (2014). Does Bank Market Power Affect SME Financing Constraints?. Journal of Banking and Finance, 49(12), 495-505.
Seven, U., & Coskun, Y. (2016). Does Financial Development Reduce Income Inequality and Poverty? Evidence from Emerging Countries. Emerging Markets Review, 26, 34-63.
Shahbaz, M., Aboutorabi, M. A., & Ahmadian Yazdi, F. (2020). Foreign Capital, Natural Resource Rents and Financial Development: A New Approach. Global Business Review, 1, 1-20.
Stiglitz, J. E. (1985). Credit Markets and the Control of Capital. Journal of Money, Credit and Banking, 17(2), 133-52.
Stigilitz, J. E. (2012). The Price of Inequality. W. W. Norton & Company: New York.
Wang, L. (2016). Unconventional Monetary Policy and Aggregate Bank Lending: Does Financial Structure Matter?, Journal of Policy Modeling, 38(6), 1060-1077.
Xu, G. (2022). From Financial Structure to Economic Growth: Theory, Evidence and Challenges. Economic Notes, 51(1), e12197.
Zhang, R., & Ben Naceur, S. (2019). Financial Development, Inequality, and Poverty: Some International Evidence. International Review of Economics & Finance, 61(C), 1-16.

Files

History

  • Receive Date: 22 December 2022
  • Revise Date: 07 February 2023
  • Accept Date: 18 February 2023

Share

How to cite

Statistics