Investigating the Financial Kuznets Curve with Innovation in G7 Countries: An Augmented ARDL Approach

Abstract

This study explores the Financial Kuznets Curve (FKC) hypothesis insix G7 countries by incorporating innovation, measured through R&Dexpenditure, into the finance–inequality nexus. Using annual time-seriesdata and the augmented ARDL bounds testing approach, we examinelong-run relationships among financial development,innovation, and income inequality. The results provide partial supportfor the FKC: France and the United Kingdom exhibit a significant inverted-U relationship between financial development and inequality,while no such pattern is found in the United States, Germany, Italy, orJapan. In contrast, innovation demonstrates a consistently significantand inequality-reducing effect across all countries. These findings suggestthat innovation may moderate the distributional effects of financialdevelopment and highlight the importance of integrating financialand innovation policies to promote inclusive economic outcomes in advancedeconomies.