The Research About The Effect Of Financialization In US Economy On Income Inequality

Since1970s, global financial industry has experienced a rapid development, especially after the year1980, the scale of financial transactions has become larger, financial sector has developed into a core sector of the US economy. Along with the development of financial industry, economists began to raise the concept of "Financialization".The financialization of US economy was stipulated by Reaganomics in the1980s. During that period, financial sector has boosted the growth of economy. The increase of financial sector has brought much more profits and job opportunities than other sectors, while the scale of credit has enlarged nearly26times, and the contribution of finance to GDP has doubled. Meanwhile, both personal consumers and nonfinancial sectors have become more dependent on financial sector and financial market. From1970to2012, consumer credit has increased21times and financial receipts of nonfinancial sectors has increased52times, but business receipts of nonfinancial sectors has increased only14times in the same period. The statistics also shows that financialization has been inseparable with US economy after40years’development.Along with the acceleration of financialization, income inequality in the US is also becoming worse. Since1970, Gini coefficient of American families has increased by21percent, and more wealth are accumulated in few rich families. Many economists argue that the causes of income inequality include economic growth, globalization, technology progress and union power, but few scholars focus on financialization. Most existing researches concentrate on the comparison of different country’s financialization, especially developing countries, but very few of them conduct related research on the US..However, the time accordance of financialization and income inequality can’t be ignored. It is necessary to put financialization into the study of income inequality. Based on the analysis of US financialization and relative literature, this thesis analyzes the working conduits and results of financialization through qualitative analysis, which indicates that the relationship between financialization and income inequality may be non-linear. In order to confirm the hypothesis, Error Correction Model (ECM) and time series statistic are applied to test the relation between financialization and income inequality. The test result proves that their relation is inverted U-shape, which is consistent with the result of qualitative analysis.The structure of this thesis is as follows:In the first chapter, the definition of financialization and research methodology are introduced. In this thesis,"Financialization" is defined as rising importance of financial sector and the reliance of nonfinancial sectors in financial activities. In the second chapter, literature review and evaluation cover both theories and literatures about financialization and income inequality. Chapter III analyzes the characteristics of US financialization and the means and ways of financialization effects on income inequality, and further describe the possible results of the effect. Chapter IV adapts time series analysis and ECM to do empirical test. The test results prove that financialization do influence the degree of income inequality, their relation is inverted "U" shape. Chapter V concludes with research findings and policy recommendations to China’s financial development.