Impact of Financial Development on Income Inequality and Poverty in ASEAN

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Ridwan Nurazi Berto Usman


This study investigates the effect of financial development on income inequality and poverty in the context of the ASEAN (Association of Southeast Asian Nations) economy. Investigating the relationship of financial development to economic variables has attracted much attention among researchers and practitioners. Nonetheless, prior studies have resulted in conflicted and inconclusive output concerning the a priori effect of finance on the general economic progress. Therefore, by employing the longitudinal panel data analysis, we provide empirical evidence with more specific cases on the link between the finance-inequality and finance-poverty nexus. Utilising panel data analysis for a sample of five ASEAN countries (Indonesia, Malaysia, Philippines, Thailand, and Vietnam from 2007 to 2015), we investigate our proposed empirical model. Hereby, we use four financial dimensions as the proxy for financial development (financial access, financial deepening, financial efficiency, and financial stability). The Gini index and poverty gap are considered proxies of income inequality and poverty. Our results report that financial development by employing four financial dimensions contribute more to the variability of the poverty gap rather than the Gini index ratio. Also, we document that the surrogate indicators of financial access, financial deepening, financial efficiency are statistically associated with the poverty gap. On the other hand, no association is found between the proxy of financial development and income inequality.


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NURAZI, Ridwan; USMAN, Berto. Impact of Financial Development on Income Inequality and Poverty in ASEAN. Institutions and Economies, [S.l.], p. 1 - 38, june 2019. ISSN 2232-1349. Available at: <>. Date accessed: 06 dec. 2019.