Unbundling interest rate and bank credit nexus on income inequality: structural break analysis from Nigeria
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 20 July 2020
Issue publication date: 23 January 2021
Abstract
Purpose
Income inequality stalls economic growth with undesirable socio-economic consequences. Despite various measures targeted towards reducing the inequality gap, disparities in income distribution persist in Nigeria. Therefore, this study aims to explore a new line of argument to the finance mechanism in reducing income inequality.
Design/methodology/approach
The study uses time-series data on Nigeria from 1980 to 2015 with analysis conducted using the autoregressive distributed lag-error correction model approach of Pesaran et al. (2001).
Findings
The results show amongst others that the channel of real interest rate on income inequality is through bank credit, real interest rate has an indirect relationship to income inequality and bank credit has an equalising impact on income inequality when the model is augmented for a structural break. The results show amongst others, that, on average, ceteris paribus, a 1% point increase in the real lending interest rate is associated with a 0.45% decline in the volume of bank credit.
Originality/value
This paper engages a new line of argument by unbundling how financial intermediation impacts on income inequality. The extant literature submits that finance directly impacts income inequality, whereas this study investigates further to show that interest rate impacts income inequality through bank credit. That is, the transmission mechanism by which finance affects income inequality is modelled and analysed.
Keywords
Acknowledgements
This study draws insights from the author’s Doctoral Thesis. Thus, comments received from the seminars at the Departmental and College Levels are appreciated.
Funding: Not Applicable
Conflicts of interest: None
Availability of data and material: Data will be made available upon request
Citation
Adeleye, B.N. (2021), "Unbundling interest rate and bank credit nexus on income inequality: structural break analysis from Nigeria", Journal of Financial Regulation and Compliance, Vol. 29 No. 1, pp. 63-78. https://doi.org/10.1108/JFRC-04-2020-0035
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited