Financial Intermediary Development and Income Distribution Inequality : System GMM Estimation in Panel Data Analysis with Application to MENA Countries

The purpose of this paper is to study the relationship between the financial intermediation development and income distribution inequality in 16 MENA countries , over the period of 1985-2016. To control for endogeneity in estimations, the econometric method used is the System Generalized Method of Moments (GMM-System) for panel data analyses, proposed by Arellano and Bond (1991) and then further developed by Blundell and Bond (1998). The results suggest firstly, that financial development contributes significantly to the reduction of inequalities in MENA countries, on the other hand they show that these gains have been strongly offset by the increase in inflation and trade openness. However these results must be received with caution, indeed they can be altered by the non-quantitative development of the financial intermediation sector, following the financial liberalization and the monetary policy adopted by the majority of the countries of the region and which allowed financial institutions to provide more credit, especially to higher-risk households (Atkinson and Morelli 2010, Rajan 2010)