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This study analyzes the relationship between financial development and income inequality by using panel data of 60 developing and developed countries for the period 2000-2010. We find evidence for the linear negative relationship between financial development and income inequality which asserts that financial development reduces income inequality. We also find evidence supporting Kuznets inverted u-shaped hypothesis on development-income inequality link, except that for the developed countries where we find evidence for u-shaped hypothesis. It is also concluded that the panel is stationary without unit root, indicating that shocks on income inequality is not persistent.

IS-LM methodology was not developed by Hicks alone. Hicks, together with Harrod and Meade jointly contributed to the idea of general equilibrium analysis of products and money markets which were separated treated by Keynes in his General Theory. In order to honor the contribution of the other two economists, we suggested that Hicksian IS-LM framework be renamed Harrod-Hicks-Meade IS-LM model. In IS-LM graphical analysis, the slopes of IS-LM curves and the effectiveness of fiscal and monetary policy are closed related. This thesis has surveyed domestic¡]in Chinese¡^and international¡]in English¡^economics textbooks thoroughly on this matter and discovered that the mistakes are often made or not even mentioned at all. The slope of LM¡]IS¡^curve is determined by interest rate factor , Li¡]Ii¡^and income factor, Ly¡]Cy¡^. If the interest rate factor causes the slopes of two LM¡]IS¡^curves to differ, the expansionary monetary¡]fiscal¡^policy will make LM¡]IS¡^curves horizontal shift to the right. As a result, monetary¡]fiscal¡^policy will be more effective if the LM¡]IS¡^curve is steeper. On the contrary, if the income factor is the cause of the different slopes, the same policy will make LM¡]IS¡^curves shift right vertically. Monetary¡]fiscal¡^policy will be more effective if the LM¡]IS¡^curve is flatter . Once Pigou Effect is present, the aggregate demand curve will become flatter. As a result, monetary¡]fiscal¡^ policy is more¡]less¡^effective than without. Hence, monetary policy is relatively more effective than fiscal policy. In general, a policy-induced shift of aggregate demand curve can¡¦t adopt the horizontal moving method, specifically, for monetary policy, we have to adopt the vertical moving method. As for fiscal policy, the vertical moving method should be adopted , if and only if the income factor causes the different slopes of aggregate demand curves. Neither horizontal nor vertical shift in aggregate demand can be taken for the case when interest rate is the reason leading to the different slopes of aggregate demand curves.

Informality has been a widespread fact in most of developing countries. Especially after the implementation of liberalization policies in the 1980s, informal sector has expanded, and informal employment has been more attractive in the Turkish economy. The aim of this thesis is to examine whether there is wage gap between formal and informal employment in Turkey for the years 2007 and 2008. In order to test if the determinants of wages are different, selection corrected wage equations are estimated for manufacturing and service sectors for men and women separately by using the Household Labor Force Survey micro level data of TURKSTAT. We also estimated Multinomial Logit model in order to be able to take the sector selection process into account. According to our estimation results, there was a significant wage gap between formal and informal employment in Turkey for the years 2007 and 2008, even after controlling for a number of individual-specific characteristics. This indicates the existence of the segmented labor market in terms of wages in Turkey, as it is asserted by the number of researchers arguing against the neo-classical labor market theory.

This thesis examines the effects of international capital flows on economic growth by using a dynamic general equilibrium framework based on a three-sector Ramsey Model. In order to detect the impact of financial integration on production, allocation of resources across three sectors and consumption, two different economic environments are modelled. While the first model represents a closed economy with financial autarky, the second model examplifies a financially integrated open economy with partial capital mobility. Each of the models is calibrated to Turkish economy based on the data of the year 2006. The simulation results demonstrate that the presence of international capital flows, despite being limited by a borrowing constraint, reverses the impact of economic growth on production and resource allocation. It is found that even though the importance of production in tradable-goods sector diminishes in the absence of international capital flows, it increases in the open economy model. Moreover, the findings show that while production in the closed economy model simply adjusts to domestic demand, that of the open economy model is not constrained by it. This can be explained by the augmentative effect of partial capital flows on the impact of foreign demand on domestic production.