When Governance Meets Finance: Explaining Inequality in BRICS through Nonlinear Evidence

When Governance Meets Finance: Explaining Inequality in BRICS through Nonlinear Evidence | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article When Governance Meets Finance: Explaining Inequality in BRICS through Nonlinear Evidence Madiha Zaib, Dr. Syed Babar Ali This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7748360/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Why do fast-growing economies like BRICS (Brazil, Russia, India, China, and South Africa) remain trapped in persistent income inequality? This study tackles that puzzle by examining how governance quality and financial development jointly shape inequality, and how unemployment acts as a critical threshold that can amplify or dampen these effects. Using annual data from 2008 to 2023—spanning the global financial crisis, major reforms, and the post-pandemic recovery—we apply the Panel Smooth Transition Regression (PSTR) model. Unlike conventional linear approaches, PSTR uncovers non-linear and regime-dependent dynamics, revealing how the same policies can have very different consequences under varying economic conditions. The results are striking: stronger governance, particularly curbing corruption and enforcing the rule of law, consistently narrows inequality. Financial development helps when inclusive, but risks favoring elites without deliberate redistribution mechanisms. Economic growth shows mixed impacts, while unemployment reliably widens the gap, underscoring its role as a decisive trigger in the inequality process. This study makes the first non-linear contribution to the governance–finance–inequality debate in BRICS and offers a clear message for policymakers: reducing inequality requires coordinated reforms in governance, finance, and labor markets. Without such integration, growth will remain high—but unfairly shared. PSTR income-inequality Brazil China Russia Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7748360","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":527162987,"identity":"8e223002-3bd5-464f-8572-b5fb783066c6","order_by":0,"name":"Madiha Zaib","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA50lEQVRIiWNgGAWjYHACg8Mgkk2C+eADIM3DR4IWtmQDkBY2YrQwgykJHjMJsF5C6nXbD288XFBTJ88n3WNW+TXHToaNgfnhoxt4tJidSSs4POMYm2GbzLGy27LbkoEOYzM2zsGn5UCOwWEeNh7GNonkbbcltzEDtfCwSePVcv4NUMs/Cfs2iQSzYslt9URouQG0hbfNILFNIsWM8eO2w8RoeVZwmLcvIRnol2Rpxm3HediYCfnlfPLmzzzf6mznz24++PHntmp7fvbmh4/xaUEBzDxgkljlIMD4gxTVo2AUjIJRMGIAAOEZRgvjbZvpAAAAAElFTkSuQmCC","orcid":"","institution":"Hamdard University","correspondingAuthor":true,"prefix":"","firstName":"Madiha","middleName":"","lastName":"Zaib","suffix":""},{"id":527162988,"identity":"a2e4c266-0311-4541-bb55-5e321485f91e","order_by":1,"name":"Dr. Syed Babar Ali","email":"","orcid":"","institution":"Hamdard University","correspondingAuthor":false,"prefix":"Dr.","firstName":"Syed","middleName":"Babar","lastName":"Ali","suffix":""}],"badges":[],"createdAt":"2025-09-30 07:23:21","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-7748360/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7748360/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":93207481,"identity":"fa5de897-adff-4b0f-98ce-2a3fe645a637","added_by":"auto","created_at":"2025-10-10 08:21:25","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":485977,"visible":true,"origin":"","legend":"","description":"","filename":"Manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7748360/v1_covered_3ef0ffc9-29a9-401b-9874-ffa567c044a8.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"When Governance Meets Finance: Explaining Inequality in BRICS through Nonlinear Evidence","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"PSTR, income-inequality, Brazil, China, Russia","lastPublishedDoi":"10.21203/rs.3.rs-7748360/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7748360/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eWhy do fast-growing economies like BRICS (Brazil, Russia, India, China, and South Africa) remain trapped in persistent income inequality? 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