FINANCIAL DEVELOPMENT AND INCOME INEQUALITY NEXUS IN SOUTH AFRICA: AN EMPIRICAL INVESTIGATION

The South African government has faced a persistent struggle in reducing income inequality over the years, despite notable advancements in certain sectors, including the financial sector. This study examined the asymmetric impact of financial development on income inequality in South Africa using data from 1980 to 2017. The results show that positive shocks to financial development are associated with higher income inequality in both the short and long term. However, negative shocks to financial development exhibit an inverse relationship with income inequality in the long run, while in the short run, the two move in the same direction. This study differs from previous research by analysing the impact of financial development on income inequality using nonlinear autoregressive distributive lag (NARDL) and the financial development index, a composite measure that integrates bank-based and market-based indicators of financial development.