Inclusive bank based financial development in countries with special needs: A semiparametric analysis

What is the role of bank based financial development in inclusive sustainable development? Our paper tries to answer this question with a novel methodology that provides an estimate of the inequality-finance relationship for every country-year observation, allowing us to examine the distribution of the relationship of interest for various country groups. Unlike other papers in the literature, our estimates are free of both functional form mis-specification bias as well as bias from endogenous regressors. Our results indicate that financial development lowers income inequality in low income countries and countries that invest in primary education. This inequality-finance relationship is also sensitive to a country's size of financial sector and quality of institutions. Our findings should be of particular interest to scholars and domestic policy makers of Countries with Special Needs, who face unique challenges meeting the goals set by United Nation's 2030 Agenda for Sustainable Development.(c) 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.

Automated summary

This paper provides estimates of the inequality-finance relationship using a novel methodology, finding that financial development reduces income inequality in low-income countries and countries that invest in primary education. The relationship is also influenced by the size of a country's financial sector and the quality of its institutions. The findings of this study are particularly relevant to scholars and policymakers in Countries with Special Needs.