A Survey on The Cointegration Relationship and Causality between Financialization and Income Inequality in Iran: ARDL Bounds and Toda-Yamamoto Approaches

The present paper addresses the long-run and causality relationship between financialization and income inequality in the macroeconomic level of Iran during the period of 2002-2018. By collecting required data, the relationship and causality between three financialization indicators (financial value added as total economy value added, financial employment as total economy employment, and market capitalization as share of GDP) along with unemployment rate, inflation rate and trade openness and Gini coefficient, as an indicator of income inequality, has been investigated. Using ARDL bounds testing approach, cointegration analysis was performed and then causality between financialization indices and income inequality is tested using Toda-Yamamoto approach. Findings of the research show that there exists a long-run relationship between considered variables when income inequality variable is utilized as dependent variable. Also, there is a unidirectional causality from financialization indicators to income inequality. This result verifies the results obtained by other researches in this field. However, because of limitation of this study to access data, the effect of financialization indices to income inequality is not estimated. It is suggested to researchers do the same study by focus on financialization phenomenon in micro level and longer period of time.