• Mansor Ibrahim International Centre for Education in Islamic Finance
Keywords: Income Inequality, Financial Sector Size, Asian Countries


The present paper seeks to assess the implications of increasing financial sector size on income inequality in eight Asian countries - Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, and South Korea.  Adopting a panel data approach, it document a non-linear relation between income inequality and financial sector size in these countries.  More precisely, the increasing financial sector size is favourable to equal income distribution only up until a size threshold, beyond which further expansion of the financial sector can worsen income distribution.  The analysis further highlights the income-equalizing effect of economic growth and infrastructure development and the income un-equalizing effect of trade and government expenditures.  These results are robust to alternative model specifications and to exclusion of a country at a time from the sample.


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