Financial Market Integration and Income Inequality

This paper uncovers novel empirical evidence that financial market integration and financial market development interact to change income inequality. When other things are controlled, the effect of financial market integration on income inequality depends on financial market development. In a country with underdeveloped financial market, income inequality gets worse as financial market opens. On the other hand, when financial market is highly developed, the effect of financial market openness on income inequality is mostly insignificant in a statistical sense. The results are still valid with different measures of financial market development, integration, and income inequality. We check that the results are robust as an endogeneity issue among financial market development and integration is controlled.