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    Relationships between Financial Development and Income Inequality in South America between the years 2000 and 2020
    (Universidad EAFIT, 2022) Aranzazu Ramírez, Mariana; Soudant, Joey; Ballesteros Ruiz, Carlos Andrés
    This paper examines the influence of financial development on income inequality on ten South American countries between the years 2000 and 2020. This work includes the overview of relevant literature as well as the construction of a dataset, and the use of an empirical model using panel data method with a long-run approach. By evaluating the impact of different dimensions of financial development: depth, access and efficiency of financial institutions and financial markets on the level of income inequality, this paper tries to disentangle the opposing views on the relationship between finance and income distribution. The main results of the analysis indicate that first, financial development decreases income inequality. Second, the negative effect on income inequality is mainly through the financial development of institutions rather than financial markets and third, when going into deeper multidimensional analysis, two out of the three measurements of financial development: access and efficiency of financial institutions, tend lower income inequality. We also performed some robustness tests by using other measurement of income inequality, the 90-10 ratio instead of the Gini coefficient, in which we arrived at similar results. With the 90-10 ratio, financial development decreases income inequality and now not only two but the three measurements of financial development in institutions: depth, access and efficiency and the efficiency of financial development in markets have a negative relationship with income inequality. Finally, the analysis was done by country in which two out of five countries chosen (Argentina and Brazil) have a negative relationship between financial development and income inequality. The robustness analysis was also done by income level where we categorized different countries by their income level, and we looked at the effect on the depth, access, and efficiency level. We found that on the country level, the three measurement of financial development affect income inequality differently.