Measurement of Economic and Banking Stability in Emerging Markets by Considering Income Inequality and Nonperforming Loans

Abstract

Economic and banking instability are the factors that can affect each other significantly. This chapter aims to measure the relationship between income inequality and nonperforming loans ratio. For this purpose, 20 different emerging economies are evaluated by using Pedroni panel cointegration and Dumitrescu Hurlin panel causality analysis. In addition to this aspect, annual data between the years 2000 and 2015 is considered in the analysis process. It is concluded that there is a long-term relationship between these variables. Hence, it can be said that these countries should take some actions to improve banking system. In other words, nonperforming loans ratio in banking sector can be decreased when banks in these countries can choose customers more effectively. Therefore, income inequality problem can be minimized in emerging economies.