South Africa: New IMF Study Explores Links Between Finance and Inequality

analysis

The International Monetary Fund study's findings, based on a global survey of data sets, is extremely relevant to South Africa's political economy.

If you support a free market, or mixed economy, you should be comfortable with a certain amount of inequality. Having said that, searing disparities, such as those that disfigure South Africa's body politic, are clearly legitimate causes for concern.

Inequality is again in focus at the moment with gazillionaires descending on Davos, and Oxfam reporting that the world's 22 richest men have more wealth than all of the women in Africa.

Against this backdrop, the International Monetary Fund (IMF), has published one of its periodic "staff discussion notes", this one focused on the role of the financial sector in reducing or increasing inequality.

The paper looked at three broad issues: Firstly, does greater financial depth - essentially, the size and sophistication of the financial sector - curb or exacerbate inequality? Secondly, does greater financial inclusion lower income inequities within countries? Finally, the study examined the relationship between financial stability and income inequality.

On the first question, the researchers found that:

"Initially, financial depth is associated with lower inequality, but only up to a point, after which inequality rises ...

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