Husain, Shaiara and Sohag, Kazi and Hasan, Rajibul and Shams, S. M. Riad (2020) Interest rate and income disparity: Evidence from Indonesia. Strategic Change, 29 (6). pp. 665-672. ISSN 1086-1718

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Abstract

We highlight the most adverse impact of capitalism on inequality through the channel of the interest rate. The interest rate has been an instrument of capitalism which aggravates the accumulation of wealth in the hands of very few people and thereby worsens inequality. To this end, this article scrutinises the dynamic impact of financial development on income inequality in the context of Indonesia, applying DOLS and FMOLS approach by analysing time series data over the years of 1984 to 2018. Rising income inequalities has been a common perpetuating trend of East Asian countries among which we find the case of Indonesia worth interesting to study while filling up the gap in the existing literature. We provide evidence that interest rate exacerbates income inequality in the long-run economy of Indonesia. Financial development in the early phases of development favours economic activity in the urban sector based on capital intensive technology which does not help absorb excess rural labour. The empirical finding of this study profoundly demonstrates one of the substantial drawbacks of capitalism in terms of income disparity.

Item Type:	Article
Keywords:	income inequality; indonesia; interest rate;
Academic Unit:	Faculty of Social Sciences > School of Business
Item ID:	15942
Identification Number:	https://doi.org/10.1002/jsc.2381
Depositing User:	Rajibul Hasan
Date Deposited:	11 May 2022 11:23
Journal or Publication Title:	Strategic Change
Publisher:	Wiley
Refereed:	Yes
URI:	Publisher
Use Licence:	This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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