Financial Development Impact Towards Economic Growth and Income Inequality in 5-Asean Countries

Abstract

Financial development is essential in influencing a country's economic environment. ASEAN countries exhibit varying degrees of financial sector maturity, ranging from highly developed to less develop. Nevertheless, its banking sectors are relatively well-developed. The article aims to examine the impact of financial development on economic growth and income inequality in five ASEAN countries. The study examines a bank-based financial system using the ratio of domestic credit to the private sector to GDP as a measure of financial development. The study utilises panel data regression analysis spanning from 1990 to 2020. Other economic drivers included in the models as control variables are human capital, labour force growth rate, government expenditure, physical capital, inflation, and trade openness. The findings of this study suggest that financial development in five ASEAN countries has a significant negative relationship with economic growth while positively related to income disparity This study uncovers adverse outcomes on the impact of financial development, highlighting the need for legislative reform to improve the efficiency of the banking sector in delivering financial services to all societal groups.