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Financial Development, Income Inequality, and Poverty Reduction: Democratic Versus Autocratic Countries

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Abstract

The aim of this paper is to test the relationship between financial development (FD), political institutions (PI), income inequalities (II), and poverty. We tested this relationship using different estimation methods and two separate samples. The first sample consists of a panel of 93 democratic countries and the second includes a panel of 31 autocratic countries. Results indicate that, unlike in autocratic countries, FD and democratic institutions, taken separately, help to bridge the gap between the rich and the poor by reducing poverty in democratic countries. To the contrary of autocratic countries, the interaction between FD and PI, strangely enough, does not reduce II and poverty in democratic countries. Analysis of the sub-democratic group yields opposite results, particularly in low-, mid-, and upper-mid-income countries compared with high-income countries.

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Notes

  1. Cf. The Standardized World Income Inequality Dataset (SWIID) created by Solt (2014) and the Polity4 Project database available in http://privatewww.essex.ac.uk/~ksg/polity.html.

  2. This database standardizes several sources of income inequality such as the United Nations University’s World Income Inequality Database, the OECD Income Distribution Database, the Socio-Economic Database for Latin America and the Caribbean issued by CEDLAS and the World Bank, Eurostat, the World Bank PovcalNet, the UN Economic Commission for Latin America and the Caribbean, the World Top Incomes Database, national statistical offices around the world. Total coverage is 171 countries with 4285 observations (country-years) and 802 observations on average over 5 years.

    http://myweb.uiowa.edu/fsolt/swiid/swiid.html

  3. Every July 1st, the WB revises its ranking of world economies. Still, this ranking uses GDP figures of the previous year. For example, as of July 1, 2016, the criteria are set as follows: GDP per capita of $ 1025 or less defines low-income countries, GDP per capita between $ 1026 and $ 4035 defines lower middle-income countries, while a GDP per capita between $ 4036 and $ 12,475 defines the upper middle-income countries. Moreover, a GDP per capita higher or equal to $ 12,476 defines the high-income countries. These updated figures are taken into account in the WB’s operational guidelines to determine eligibility of some countries for funding.

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Authors and Affiliations

  1. ESCT Business School, University Manouba & ECSTRA Laboratory, Manouba, Tunisia

    Nasreddine Kaidi & Sami Mensi

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  1. Nasreddine Kaidi
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Appendices

Appendix 1

Table 6 Descriptive statistics from the democratic country vs. the autocratic country
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Appendix 2

Table 7 Correlation coefficients matrix from the democratic country vs. the autocratic country
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Appendix 3

Table 8 Classification sample according to political regime
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Kaidi, N., Mensi, S. Financial Development, Income Inequality, and Poverty Reduction: Democratic Versus Autocratic Countries. J Knowl Econ 11, 1358–1381 (2020). https://doi.org/10.1007/s13132-019-00606-3

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