This study analyzes the relationship between financial development and inequality using panel data from 14 APEC countries from 1960 to 2006. Based on the system Gener­alized Method of Moments (GMM) estimator, a positive relationship between financial development and inequality is observed. The results of this study contrast with previous findings due to the different sampled countries and the advanced econometric technique employed which collapsed the instrument counts. Moreover, the comparison of this relationship between the developed and develop­ing countries is analyzed by including an interaction term between developing countries and financial development. For developing APEC countries, the positive relationship is much smaller. As the financial market develops, the change of income gap is relatively smaller in developing countries compared with developed countries. There is not enough evidence that financial development benefits only the poorest quintile. As a result of financial development, the income share of both the poor and the rich improves. Thus, this study shows that the poor as well as the rich improve their income status when there is financial development in their country. Empirical tests are done to test alternative theoretical hypotheses on the relationship between financial development and income inequality. The results confirm previous work regarding the linear relationship between financial development and inequality while rejecting the non-linear relationship.