Open Access Journal Article

The Impact of Financial Liberalization Policies on Income Inequality

by Fateh Saci a,* orcid
University of Montpellier, Montpellier, France
Author to whom correspondence should be addressed.
JEA  2024, 48; 3(1), 48;
Received: 7 April 2023 / Accepted: 15 July 2023 / Published Online: 15 March 2024


This paper examines impacts of China’s financial liberalization policy on income inequality, through three channels: financial scale, financial structure and financial efficiency, an empirical analysis based on panel data of 30 provinces in China from 1996 to 2013 is conducted. The results confirm the Kuznets effect between financial scale, financial structure and income inequality. As the size of the financial sector expands, the financial structure is tilted toward direct financing, and the income gap among residents will experience a "reverse U-shaped" trend that rises first and then falls. Most of China has not yet passed the turning point, and is still in the upper bound of the "inverted U-shaped" curve. Financial liberalization policies will continue to exacerbate income inequality. The impact of financial efficiency on income distribution is quite different in different regions of China. After dividing the whole China into three regions according to the degree of economic development, it is found that the financial efficiency of the eastern and western regions has a Kuznets effect on the income gap, but compared with the eastern region, more provinces and cities in the western region have entered the stage of reducing the income inequality, and the financial development has a great impact on the western region. The effects of financial development on central China are weak, and income inequality increases with financial efficiency.

Copyright: © 2024 by Saci. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
Show Figures

Share and Cite

ACS Style
Saci, F. The Impact of Financial Liberalization Policies on Income Inequality. Journal of Economic Analysis, 2024, 3, 48.
AMA Style
Saci F. The Impact of Financial Liberalization Policies on Income Inequality. Journal of Economic Analysis; 2024, 3(1):48.
Chicago/Turabian Style
Saci, Fateh 2024. "The Impact of Financial Liberalization Policies on Income Inequality" Journal of Economic Analysis 3, no.1:48.
APA style
Saci, F. (2024). The Impact of Financial Liberalization Policies on Income Inequality. Journal of Economic Analysis, 3(1), 48.

Article Metrics

Article Access Statistics


  1. Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a fundamental cause of long-run growth. Handbook of economic growth. 1, 385-472. DOI: 10.1016/Sl574-0684(05)01006-3
  2. Aghion, P., Caroli, E., & Garcia-Penalosa, C. (1999). Inequality and economic growth: the perspective of the new growth theories. Journal of Economic literature. 37, 1615-1660. DOI: 10.1257/jel.37.4.1615
  3. Agnello, L., Mallick, S. K., & Sousa, R. M. (2012). Financial reforms and income inequality. Economics Letters. 116, 583-587. DOI: 10.1016/j.econlet.2012.06.005
  4. Ali, A. (2022). Financial Liberalization, Institutional Quality and Economic Growth Nexus: Panel Analysis of African Countries. Bulletin of Business and Economics (BBE), 11(3), 37-49.
  5. Bandiera, O., Caprio, G., & Honohan, Schiantarelli, F. (2000). Does financial reform raise or reduce saving? Review of Economics and statistics. 82, 239-263. DOI: 10.1162/003465300558768
  6. Banerjee, A. V., & Duflo, E. (2003). Inequality and growth: What can the data say? Journal of economic growth. 8, 267-299.
  7. Beck T., Levine R., & Levkov, A. (2010). Big bad banks? The winners and losers from bank deregulation in the United States. Journal of Finance. 65, 1637-1667.
  8. Ben Naceur, S., & Zhang, R. (2016). Financial development, inequality and poverty: some international evidence. IMF Working paper PW. 16-32.
  9. Bruckner, M., & Lederman, D. (2015). Effects of income inequality on economic growth. World Bank Group. Office of the Chief Economist, Latin America and the Caribbean Region.
  10. De Soysa, I., & Vadlamannati, K. C. (2021). Free market capitalism and societal inequities: assessing the effects of economic freedom on income inequality and the equity of access to opportunity, 1990–2017. International Political Science Review, 01925121211039985.
  11. Galor, O., & Zeira, J. (1993). Income distribution and macroeconomics. Review of economic studies. 60, 35-52.
  12. Goldsmith, RW. (1969). Financial Structure and Development. New Haven: Yale University Press, (No. HG174 G57).
  13. Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of political Economy. 98, 1076-1107.
  14. Gu Xiujuan, & Bai Junyi. (2015). Empirical Study on China's Financial Development and Urban-Rural Income Gap : Based on Panel Data of 31 Provinces. Southwest Finance. 10, 3-8.
  15. Guo, S. (2022). Research on Finance Liberalization and Regulation Based on the Experience of China’s Liberalization Transformation. In 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) (pp. 2746-2753). Atlantis Press.
  16. Inekwe, J. N., Jin, Y., & Valenzuela, M. R. (2020). Income inequality, financial flows and political institution: sub-Saharan African financial network. Empirical Economics. 58, 2635–2665.
  17. Kaminsky, G. L., & Schmukler, S. L. (2003). Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization,” NBER Working Paper 9787.
  18. Koh, S. G., Lee, G. H., & Bomhoff, E. J. (2020). The income inequality, financial depth and economic growth nexus in China. The World Economy, 43(2), 412-427.
  19. Kuznets, S. (1955). Economic growth and income inequality. American economic review. 45, 1-28.
  20. Lardy, N. R. (1998). China's unfinished economic revolution. Brookings Institution Press.
  21. Le, Q. H., Do, Q. A., Pham, H. C., & Nguyen, T. D. (2021). The impact of foreign direct investment on income inequality in Vietnam. Economies, 9(1), 27.
  22. Levine, R. (2005). Finance and growth: theory and evidence. Handbook of economic growth. 1, 865-934.
  23. Li Yonghui, Jiang Xuquan, & Liu Guineng. (2008). The Evolution of Income Gap in China Based on Financial Deepening. Hainan Finance. 3, 17-21.
  24. Liddle, B. (2017). Urbanization and inequality/poverty. Urban Science. 1, 35.
  25. Liu, W. (2023). Economic Growth, Market-Oriented Reform, and Monetary Policy in China. In Research on China’s Monetary Policy System and Conduction Mechanism (pp. 1-20). Singapore: Springer Nature Singapore.
  26. Lustig, N., Pessino, C., & Scott, J. (2013). The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: Introduction to the Special Issue, Public Finance Review. 13. ttps://
  27. Mansour, O. (2023). Empirical Analysis of Institutional Quality and Financial Development on Income Inequality in Central America. Empirical Economic Bulletin, An Undergraduate Journal, 16(1), 10.
  28. McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution Press.
  29. McKinnon, R. I. (1993). The order of economic liberalization: Financial control in the transition to a market economy. JHU Press.
  30. Muganyi, T., Yan, L., Yin, Y., Sun, H., Gong, X., & Taghizadeh-Hesary, F. (2022). Fintech, regtech, and financial development: evidence from China. Financial innovation, 8(1), 1-20.
  31. Mukherjee, P., Roy Chowdhury, S., & Bhattacharya, P. (2021). Does financial liberalization lead to financial development? Evidence from emerging economies. The Journal of International Trade & Economic Development, 30(8), 1263-1287.
  32. Ni, N., & Liu, Y. (2019). Financial liberalization and income inequality: A meta-analysis based on cross-country studies. China Economic Review, 56, 101306.
  33. PBOC. (2012a). “The Conditions are mainly matured for China to accelerate capital account openness,” Financial Survey and Statistics Department, People’s Bank of China, February 13th.
  34. Peng, X. (2001). Path dependence of financial development and financial liberalization. Shanghai Sanlian Bookstore.
  35. Perotti, E., & Volpin, P. (2007). Investor protection and entry. Tinbergen Institute Discussion Paper, No. 07-006/2.
  36. Qiu, J., He, F., & Ai, Y. (2011). Discussion on the Interactive Relationship between Financial Restraint, Financial Restraint, Financial Liberalization and Financial Deepening. Journal of Tianjin University of Finance and Economics. 6, 55-63.
  37. Ridzuan, A. R., Zakaria, S., Fianto, B. A., Yusoff, N. Y. M., Sulaiman, N. F. C., Razak, M. I. M., ... & Lestari, A. (2021). Nexus between financial development and income inequality before pandemic covid-19: Does financial Kuznets Curve exist in Malaysia, Indonesia, Thailand and Philippines. International Journal of Energy Economics and Policy, 11(2), 260-271.
  38. Schumpeter, J. A. (1989). Theory of economic development. Essays On Entrepreneurs, Innovations, Business Cycles and the Evolution of Capitalism, Routledge.
  39. Shaw, E. S. (1973). Financial deepening in economic development, New York: Oxford University Press
  40. Wang, T., & Dong, J. (2015). Empirical Test of the Impact of Financial Deepening on Urban-Rural Income Gap. Statistics and Decision. 9, 172-175.
  41. Wu, D., & Rao, P. (2017). Urbanization and income inequality in China: An empirical investigation at provincial level. Social Indicators Research. 131, 189-214.
  42. Xu, M. (2017). Financial Inclusion, Financial Deepening and Urban-Rural Income Gap. Journal of Finance and Accounting.11, 118-121.
  43. Yang, J., Li, X., & Zhang, Z. (2006). An Empirical Analysis of China's Financial Development Level and Residents' Income Distribution. Economic Science. 28, 23-33.
  44. Yu, L. (2012). Financial development and income inequality: just linear relationship? Shanghai Finance. 4, 16-19.
  45. Zhong, Z., Zhang, W. (2017). China's Financial Reform: Experience, Dilemma and Future. International Economic Review. 5, 57-79.