This study inspects the nexus between financial development and income inequality. To a certain extent the empirical findings present evidence to show that financial market expansion in Vietnam widens income inequality, through which some policy recommendations are provided with regard to reducing the inequality of income distribution across the society. | 22 Le Quoc Hoi & Chu Minh Hoi / Journal of Economic Development 23(2) 22-37 Impact of Financial Development on Income Inequality in Vietnam LE QUOC HOI National Economics University – hoilq@ CHU MINH HOI Vietnam Institute of Economics – ARTICLE INFO ABSTRACT Article history: Utilizing the approach of constructing indicators treated as representatives for degree of financial development at provincial level of Vietnam over the 2002–2012 period along with Generalized Method of Moments (GMM), this study inspects the nexus between financial development and income inequality. To a certain extent the empirical findings present evidence to show that financial market expansion in Vietnam widens income inequality, through which some policy recommendations are provided with regard to reducing the inequality of income distribution across the society. Received: Apr. 15 2015 Received in revised form: Aug. 17 2015 Accepted: Mar. 25 2016 Keywords: Financial development, income inequality, GMM. Le Quoc Hoi & Chu Minh Hoi / Journal of Economic Development 23(2) 22-37 23 1. Problem statement Inequality is not advantageously conducive to long-term growth, and in the long run costs of overcoming social consequences are enormous once the increasing problem is perceived among social groups. Riots erupted in Egypt in 2011 were caused by its citizens’ being aware of such a huge gap between the rich and the poor that it became intolerable to them. As reported by the World Bank (2014a), 76% and 53% of urban and rural population respectively in Vietnam felt deeply concerned about the income inequality. Another noticeable matter from the report is that the concern was voiced more by the youth group, implying that awareness of the prevailing problem would be heightened for at least one more generation. The increasing inequality is one of the factors that influence the probability of escaping the middle-income trap by such a developing country as .
