Investigation of Parabolic Relationship Between Financial Development and Income Inequality using U Test: Analysis of Financial Curve in Türkiye

Nimet Melis Esenyel İçen

Article Details

Investigation of Parabolic Relationship Between Financial Development and Income Inequality using U Test: Analysis of Financial Curve in Türkiye

Authors:

Nimet Melis Esenyel İçen

Publisher:

Istanbul University

Main Topics:

Makro İktisat (Diğer)

Journal:

İktisat Politikası Araştırmaları Dergisi Vol.11 Issue 2, pp.355-369

Document Type:

Article

Publication Date:

8/2024

Document Language:

Turkish

Document ID (Org No.):

2001326925

pISSN:

2148-3876

Keywords:

Abstract:

 This study investigates the relationship between income inequality and financial development within the framework of the financial Kuznets hypothesis. The aim of this study is to determine the effects of financial development, inflation, and per capita income variables on income inequality using annual data from Turkiye for the period 1987-2021. The share of domestic credits to the private sector provided by banks in gross domestic product is considered as a measure of financial development. The Gini coefficient is used as an indicator of income inequality. To examine the long-term relationships between variables, the ARDL Bounds test developed by Pesaran, Shin, and Smith 2001 is conducted. According to the ARDL Bounds test, it is concluded that there is a long-run relationship exists among the variables. In the estimated long-run model, when examining the signs and statistical significance of the coefficients of the financial development variable and its square, it is found that there is initially a U-shaped relationship. However, this assessment is inadequate and may lead to misleading results. Therefore, a three-step model evaluation method is employed. First, attention should be paid to the signs and statistical significance of the coefficients of the financial development variable and its square. In the second step, it is checked whether the turning point of the parabola is within the data range. Finally, the slope at the smallest and largest values of the parabola should be sufficiently steep. According to the U test conducted to verify this condition, we conclude that the U-shaped model is valid.

 This study investigates the relationship between income inequality and financial development within the framework of the financial Kuznets hypothesis. The aim of this study is to determine the effects of financial development, inflation, and per capita income variables on income inequality using annual data from Turkiye for the period 1987-2021. The share of domestic credits to the private sector provided by banks in gross domestic product is considered as a measure of financial development. The Gini coefficient is used as an indicator of income inequality. To examine the long-term relationships between variables, the ARDL Bounds test developed by Pesaran, Shin, and Smith 2001 is conducted. According to the ARDL Bounds test, it is concluded that there is a long-run relationship exists among the variables. In the estimated long-run model, when examining the signs and statistical significance of the coefficients of the financial development variable and its square, it is found that there is initially a U-shaped relationship. However, this assessment is inadequate and may lead to misleading results. Therefore, a three-step model evaluation method is employed. First, attention should be paid to the signs and statistical significance of the coefficients of the financial development variable and its square. In the second step, it is checked whether the turning point of the parabola is within the data range. Finally, the slope at the smallest and largest values of the parabola should be sufficiently steep. According to the U test conducted to verify this condition, we conclude that the U-shaped model is valid.

 This study investigates the relationship between income inequality and financial development within the framework of the financial Kuznets hypothesis. The aim of this study is to determine the effects of financial development, inflation, and per capita income variables on income inequality using annual data from Turkiye for the period 1987-2021. The share of domestic credits to the private sector provided by banks in gross domestic product is considered as a measure of financial development. The Gini coefficient is used as an indicator of income inequality. To examine the long-term relationships between variables, the ARDL Bounds test developed by Pesaran, Shin, and Smith 2001 is conducted. According to the ARDL Bounds test, it is concluded that there is a long-run relationship exists among the variables. In the estimated long-run model, when examining the signs and statistical significance of the coefficients of the financial development variable and its square, it is found that there is initially a U-shaped relationship. However, this assessment is inadequate and may lead to misleading results. Therefore, a three-step model evaluation method is employed. First, attention should be paid to the signs and statistical significance of the coefficients of the financial development variable and its square. In the second step, it is checked whether the turning point of the parabola is within the data range. Finally, the slope at the smallest and largest values of the parabola should be sufficiently steep. According to the U test conducted to verify this condition, we conclude that the U-shaped model is valid.

 Bu çalışmada gelir eşitsizliği ile finansal gelişmişlik arasındaki ilişki, finansal Kuznets hipotezi çerçevesinde araştırılmıştır. Türkiyenin 1987-2021 yılları arası yıllık frekansta finansal gelişmişlik, enflasyon, kişi başı gelir değişkenleri alınarak, gelir eşitsizliği üzerindeki etkilerinin belirlenmesi amaçlanmıştır. Bankalar tarafından özel sektöre verilen yurt içi kredilerin gayrisafi yurt içi hasıladaki payı, finansal gelişmişlik göstergesi olarak ele alınmıştır. Gelir eşitsizliğinin bir göstergesi olarak ise Gini katsayısı kullanılmıştır. Çalışmada değişkenler arasındaki uzun dönemli ilişkinin araştırılmasında, Pesaran, Shin ve Smith 2001 tarafından geliştirilen ARDL Sınır testi yapılmıştır. ARDL sınır testine göre, değişkenler arasında eşbütünleşme ilişkisi olduğu sonucuna ulaşılmıştır. Tahmin edilen uzun dönem modelinde, finansal gelişmişlik değişkeni ve bu değişkenin karesinin katsayılarının işaretlerine ve istatistiksel anlamlılıkları incelendiğinde, önsel olarak U-tipi bir ilişkinin olduğu sonucuna ulaşılmıştır. Ancak bu değerlendirme yetersizdir ve yanıltıcı sonuçlar elde edilmesinde sebep olabilir. Bu sebeple üç aşamalı model değerlendirme yöntemi kullanılmıştır. Öncelikle, finansal gelişmişlik değişkeni ve bu değişkenin karesinin katsayılarının işaretlerine ve istatistiksel anlamlılıklarına bakılmalıdır. İkinci aşamada, parabolün dönüm noktasının veri aralığında olup olmadığı kontrol edilmedir ve son olarak parabolün en küçük ve en büyük değerlerindeki eğimi yeterince dik olmalıdır. Bu koşulun kontrol edilmesi için yapılan U testine göre, U-tipi modelin geçerli olduğu söylenebilir.

Article Details

Investigation of Parabolic Relationship Between Financial Development and Income Inequality using U Test: Analysis of Financial Curve in Türkiye

Authors:

Nimet Melis Esenyel İçen

Publisher:

Istanbul University

Main Topics:

Makro İktisat (Diğer)

Journal:

İktisat Politikası Araştırmaları Dergisi Vol.11 Issue 2, pp.355-369

Document Type:

Article

Publication Date:

8/2024

Document Language:

Turkish

Document ID (Org No.):

2001326925

pISSN:

2148-3876

Financial kuznets hypothesis

Income inequality

ARDL bounds test

CointegrationFinansal kuznets hipotezi

Gelir eşitsizliği

ARDL sınır testi

Eşbütünleşme

Issues

Article Details

Authors: Nimet Melis Esenyel İçen

Publisher: Istanbul University

Main Topics: Makro İktisat (Diğer)

Journal: İktisat Politikası Araştırmaları Dergisi Vol.11 Issue 2, pp.355-369

Document Type: Article

Publication Date: 8/2024

Document Language: Turkish

Document ID (Org No.): 2001326925

pISSN: 2148-3876

Issues

Authors:

Nimet Melis Esenyel İçen

Publisher:

Istanbul University

Main Topics:

Makro İktisat (Diğer)

Journal:

İktisat Politikası Araştırmaları Dergisi Vol.11 Issue 2, pp.355-369

Document Type:

Article

Publication Date:

8/2024

Document Language:

Turkish

Document ID (Org No.):

2001326925

pISSN:

2148-3876