Financialization, digital technology and income inequality

ABSTRACT

This paper investigates the impact of digital technology on the relationship between financialization and income inequality of 54 countries from 2010 to 2015. The results show that financialization and digital technology widen the income inequality gap. Therefore, policies should be centred primarily on eliminating obstacles and developing innovative products that focus on solutions to the low-income consumer problem and those who have been marginalized.

KEYWORDS:

• Financialization
• income inequality
• digital technology
• financial inclusion

JEL CLASSIFICATION:

• D31
• E44
• O16

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Evidence for the effect of financial development on economic growth have emerged into a consensus that it improves growth (Levine 2005; Christopoulos and Tsionas 2004; Benhabib and Spiegel 2000).

² Scholars have split the digital divide problem into three levels; first is due to internet access, second internet skills and material access, and third the outcomes of internet use (Van Deursen and van Dijk 2019).

³ By using Cook’s distance outlier test, we excluded countries with outlier variables.

⁴ The list of countries is in the Online Appendix 1.

⁵ Due to data limitations, we are unable to use stock market capitalization as the instrument of financialization.

⁶ We also estimate the model by using another proxy of financialization, commercial bank branches per 100,000 adults. However, the results suffered from a second-order serial correlation problem.

⁷ We also estimate the model of segregation of high-income and non-high income. The results of non-high-income show an insignificant effect of interaction variables, implying that digital technology plays no role in complementing the effect of financialization on income inequality. Significant positive effects of interaction variables were found for high-income countries. The results are attached in the Online Appendix 2.

Additional information

Funding

This work was supported by the Ministry of Higher Education, Malaysia under Fundamental Research Grant Scheme for Research Acculturation of Early Career Researchers [RACER/1/2019/SS01/UUM//10] (S/O Code: 14459).