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Profit Sharing, Income Inequality and Capital Accumulation

Author

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  • Mahmoud Sami Nabi

    (IRTI-Islamic Development Bank and Economic Research Forum)

Abstract
The relationship between economic development and income inequality isn’t neutral vis-à-vis the role of the financial system in responding to the needs of different categories of agents. Indeed, as shown by the literature on the persistent inequality (e.g. Banarjee and Newman, 1993; Piketty, 1997), taking account of the asymmetric impact of the financial imperfections on wealthy and poor agents changes the pace of the Kuznets (1955) relationship between economic development and income inequality. In this paper we try to analyze the effect of introducing profit-sharing financial contracts between banks and entrepreneurs on the evolution of the capital accumulation/income inequality relationship. It is interestingly shown that income inequality disappears when the economy reaches a second stage of development.

Suggested Citation

  • Mahmoud Sami Nabi, 2013. "Profit Sharing, Income Inequality and Capital Accumulation," Working Papers 781, Economic Research Forum, revised Oct 2013.
    • Handle: RePEc:erg:wpaper:781
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    References listed on IDEAS

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    1. Mr. Abbas Mirakhor & Mr. Mohsin S. Khan, 1991. "Islamic Banking," IMF Working Papers 1991/088, International Monetary Fund.
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    Cited by:

    1. Hechem Ajmi & Salina Kassim & Hassanuddeen Abdul Aziz & Walid Mansour, 2019. "A Literature Review of Financial Contracting Theory from the Islamic and Conventional Overviews: Contributions, Gaps, and Perspectives استعراض أدبيات نظرية التعاقد المالي من المنظور الإسلامي والتقليدي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 32(2), pages 25-42, January.

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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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