Abstract
This study asks whether technological innovation, financialization, or both are responsible for
1 Previous versions of this paper were presented on several occasions including the 2024 AEP Meeting (March 2024; Seoul, Korea), and the 2023 KEA International Conference (July 2023; Yeosu, Korea). This study received financial support from the Center for Distributive Justice of the Institute for Economic Research of Seoul National University, as well as from the National Research Foundation of South Africa (Grant Number: 118873) via the DSI/NRF/Newton Fund Trilateral Chair in Transformative Innovation, the 4IR, and Sustainable Development. The authors thank the editor, the referees, Iris Claus, Prema-chandra Athukorala, and the other participants of the 2024 AEP Meeting for their comments that strengthened the paper.
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global increases in income inequality. To explore this question, this study adopts a modeling and estimation approach that handles past econometric issues and provides causal estimates of shocks on income inequality. This new approach yields several results. First, in contrast with the prediction that technological innovation may increase income inequality, no connection between innovation and income inequality is found. Second, financialization, rather than financial development, is found to increase income inequality. Finally, increases in income inequality due to financialization appear to reflect represent increases in the income shares of top earners at the expense of middle earners rather than workers from the bottom half of the income distribution.