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.

Key Terms in this Chapter

Nonperforming Loans Ratio: It is the ratio of nonperforming loans to the total amount of the loans.

Developed Country: It refers to the country which has high economic performance in comparison with the developing and least developed countries.

Gini Coefficient: It is an aggregate numerical aggregate measure about income equality whose values are ranging from 0 to 1.

Emerging Economies: They refer to the countries whose economies are not developed yet. However, they have a potential to be a developed country.

Nonperforming Loans: They refer to the loans which are not paid by the customers more than 90 days.

Dumitrescu Hurlin Panel Causality Analysis: It is an advanced form of Granger causality analysis in which panel data is analyzed.