Financial Development and Income Inequality: A Case of Pakistan

The objective of this research paper is to investigate relation between financial development and income inequality in Pakistan. For this purpose, we used time series data from 1980 to 2016 and used ADF test to check stationarity. We also applied the Autoregressive Distributive Lagged (ARDL) model, Bound Test and Error Correction Model (ECM) to ascertain short-run a long-run relationship between variables. Our finding rejects the gj hypothesis and concludes that there is a negative relationship between financial development and income inequality in short-run and positive relation in long run. Financial development worsens the distribution of income in the long run. Our hypothesis conclude Pakistan economy is not in favor of G j hypothesis and that income inequality increases with an increase in financial development. We defend our result that Pakistan economy could not produce the same