Domestic Credit Supply, income Inequality, and Current Account – in Developed and Non-developed Financial Markets

Abstract

Abstract Previous research has not econometrically, for countries with non-developed financial markets, estimated the impact domestic credit supply has on income inequality or the impact income inequality has on current account. Based on a very comprehensive panel data set, which includes 152 different countries, we econometrically estimate the impact changes in domestic credit supply has on income inequality as well as the impact changes in income inequality has on current account. Based on the econometric results in this paper, we are able to identify that the impact credit supply has on income inequality goes in opposite directions depending on if the financial market is developed or non-developed. Moreover, we were able to estimate the positive effects increased income inequality has on current account for countries with non-developed financial markets, a result previous research only has estimated theoretically.