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Financial Development and Poverty: What Role for Growth and Inequality?

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  • Abdelhafidh Dhrifi

    ()
    (University of Monastir)

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    Abstract

    The paper assesses the effect of financial development on poverty reduction. To do this, we are going to build a model of simultaneous equations on a sample composed of 89 countries over the period 1990-2011. The model is based on a trilateral relationship connecting growth, inequalities and poverty. In order to do so, we suppose that financial development effects on poverty reduction can be decomposed into two opposite effects: a growth effect and a disparity one. Econometric analysis allowed us to highlight three things: first, findings support that while the indirect effect of financial development on poverty is not robust and ambiguous, the direct effect of financial development, through the channels of insurance, access to credit services and savings, is robust to reducing poverty. Second, we note that this effect depends on the magnitude and sign of the effects of financial development on inequality and growth. Third, institutional quality is an important determinant of the relationship between financial development and poverty.

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    Bibliographic Info

    Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

    Volume (Year): 3 (2013)
    Issue (Month): 4 (October)
    Pages: 119-129

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    Handle: RePEc:hur:ijaraf:v:3:y:2013:i:4:p:119-129

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    Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal

    Related research

    Keywords: Financial development; growth; inequality; poverty; simultaneous equations;

    References

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    2. 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.
    3. Ravallion, Martin, 1997. "Can high-inequality developing countries escape absolute poverty?," Economics Letters, Elsevier, vol. 56(1), pages 51-57, September.
    4. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
    5. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2004. "Finance, inequality, and poverty: cross-country evidence," Policy Research Working Paper Series 3338, The World Bank.
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    8. Kangni KPODAR, 2004. "Le Developpement Financier Et La Problematique De Reduction De La Pauvrete," Macroeconomics 0407001, EconWPA.
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    17. Quartey, Peter, 2005. "Financial Sector Development, Savings Mobilization and Poverty Reduction in Ghana," Working Paper Series RP2005/71, World Institute for Development Economic Research (UNU-WIDER).
    18. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
    19. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There be a Benefit without a Cost?," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 143-163.
    20. Vassili Prokopenko & Paul Holden, 2001. "Financial Development and Poverty Alleviation," IMF Working Papers 01/160, International Monetary Fund.
    21. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
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