Economic Freedom, Financial Development and Inequality Dynamics

Internationally, rising income inequality has become a critical policy concern, as social disparities often translate into economic and financial vulnerabilities. While economic freedom is generally associated with market efficiency and growth, its distributional consequences remain contested. This study investigates the interplay between economic freedom, financial development, and income inequality across 26 economies from 2002 to 2024, employing panel data techniques, mainly the system generalised method of moments (GMM). In addition to the core variables, the analysis incorporates inflation, economic development, and education to control broader macroeconomic influences. The results indicate that both economic freedom and financial development exacerbate income inequality, particularly when access to financial resources is skewed toward higher-income groups. These findings contribute to the growing empirical literature on economic freedom and the finance–inequality nexus and underscore the importance of inclusive financial policies in the Global South. Policymakers are urged to design interventions that expand equitable access to financial services, thereby ensuring that economic freedom and financial development foster fair income distribution rather than reinforce existing disparities.