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Finance and poverty: Evidence from fixed effect vector decomposition

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  • Akhter, Selim
  • Daly, Kevin J.
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    Abstract

    In this paper we attempt to distinguish the direct effect of financial development on poverty reduction from its indirect effect through economic growth. Using an efficient estimator called fixed effect vector decomposition (FEVD) we employ a set of panel data from 54 developing countries for the period 1993-2004. Our results indicate that on average financial development is conducive for poverty reduction but the instability accompanying financial development is detrimental to the poor. The major policy recommendations suggested by the paper indicate that financial sector reforms should be directed at easing credit restrictions while taking into consideration the effects of financial instability on the poor.

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    Bibliographic Info

    Article provided by Elsevier in its journal Emerging Markets Review.

    Volume (Year): 10 (2009)
    Issue (Month): 3 (September)
    Pages: 191-206

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    Handle: RePEc:eee:ememar:v:10:y:2009:i:3:p:191-206

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    Web page: http://www.elsevier.com/locate/inca/620356

    Related research

    Keywords: Finance Poverty Vector decomposition Emerging markets;

    References

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    1. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
    2. Van Horen, Neeltje, 2007. "Foreign banking in developing countries; origin matters," Emerging Markets Review, Elsevier, vol. 8(2), pages 81-105, May.
    3. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank.
    4. Christopher F Baum, 2006. "An Introduction to Modern Econometrics using Stata," Stata Press books, StataCorp LP, number imeus, May.
    5. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
    6. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    7. Jalilian, Hossein & Kirkpatrick, Colin, 2002. "Financial Development and Poverty Reduction in Developing Countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 97-108, April.
    8. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
    9. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
    10. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
    11. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2004. "Finance, inequality, and poverty: cross-country evidence," Policy Research Working Paper Series 3338, The World Bank.
    12. Khan, Ashfaque H & Hasan, Lubna, 1998. "Financial Liberalization, Savings, and Economic Development in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 46(3), pages 581-97, April.
    13. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
    14. Ding, David K. & Charoenwong, Charlie, 2006. "Asian market microstructure," International Review of Financial Analysis, Elsevier, vol. 15(4-5), pages 288-290.
    15. Ghosh, Saibal, 2006. "Did financial liberalization ease financing constraints? Evidence from Indian firm-level data," Emerging Markets Review, Elsevier, vol. 7(2), pages 176-190, June.
    16. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521522717.
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    Cited by:
    1. Gimet, Céline & Lagoarde-Segot, Thomas, 2011. "A closer look at financial development and income distribution," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1698-1713, July.
    2. Rathinam, Francis Xavier & Raja, Angara V., 2010. "Law, regulation and institutions for financial development: Evidence from India," Emerging Markets Review, Elsevier, vol. 11(2), pages 106-118, June.
    3. Bouton, Lawrence & Tiongson, Erwin R., 2010. "Subjective perceptions of financing constraints: How well do they reflect credit market conditions?," Emerging Markets Review, Elsevier, vol. 11(2), pages 98-105, June.
    4. Mookerjee, Rajen & Kalipioni, Paul, 2010. "Availability of financial services and income inequality: The evidence from many countries," Emerging Markets Review, Elsevier, vol. 11(4), pages 404-408, December.

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