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BANK COMPETITION, FINANCIAL DEVELOPMENT, AND INCOME INEQUALITY.

Income inequality rises with financial development initially and then drops. We reach this conclusion by numerically solving a heterogeneous agent model parameterized to the Chinese economy. The model features a banking sector with Cournot competition, and the process of financial development in the...

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Published in:Contemporary Economic Policy Vol. 39; no. 1; pp. 42 - 59
Main Authors: Fu, Zhe, Xi, Dan, Xu, Jia
Format: Article
Published: Wiley-Blackwell Jan2021
Subjects:
China
Income inequality
Banking industry
Deregulation
Moments method (Statistics)
Online Access:View this record in EBSCOhost
Summary:Income inequality rises with financial development initially and then drops. We reach this conclusion by numerically solving a heterogeneous agent model parameterized to the Chinese economy. The model features a banking sector with Cournot competition, and the process of financial development in the model economy begins with the deregulation of the banking sector. Based on regressions with the fixed effects and the system generalized method of moments, the empirical analysis also suggests an inverted‐U relationship between income inequality and financial development using provincial data from China.