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Financial Development and Inequality: Brazil 1985-99

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  • Manoel F. Meyer Bittencourt

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Abstract

We examine the impact that financial development had on earnings inequality in Brazil in the 1980's and 90's. The empirical evidence, based on panel time series and time series data, shows that more broad access to financial and credit markets had a significant and robust effect in reducing inequality during the period investigated. We suggest that this is not only because the poor can invest the acquired credit in all sorts of productive activities, but also because those with access to financial markets can insulate themselves against recurrent poor macroeconomic performance, which is exemplified by high inflation rates. The main implication of the results is that a seemingly nondistortionary policy, such as more credit aimed at the poor, alleviates the extreme inequality present in Brazil and consequently improves welfare without distorting economic efficiency.

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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 06/582.

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Length: 25 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bri:uobdis:06/582

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Keywords: Financial development and markets; credit; inequality and welfare; inflation.;

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Cited by:
  1. Shahbaz, Muhammad & Islam, Faridul, 2011. "Financial development and income inequality in Pakistan: An application of ARDL approach," MPRA Paper 28222, University Library of Munich, Germany.
  2. Monal Abdel-Baki, 2011. "The efficacy of the Egyptian bank reform plan in mitigating the impact of the global financial crisis," Economic Change and Restructuring, Springer, Springer, vol. 44(3), pages 221-241, August.
  3. Bittencourt, Manoel, 2008. "Inflation and Financial Development: Evidence from Brazil," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/14, World Institute for Development Economic Research (UNU-WIDER).
  4. Ziv Chinzara & Radhika Lahiri, 2012. "Economic growth and inequality patterns in the presence of costly technology adoption and uncertainty," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 280, School of Economics and Finance, Queensland University of Technology.
  5. Santos ALIMI, 2014. "Inflation and Financial Sector Performance: the Case of Nigeria," Timisoara Journal of Economics and Business, West University of Timisoara, Romania, Faculty of Economics and Business Administration, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 7(1), pages 55–69.
  6. Siong Hook Law & Hui Boon Tan, 2009. "The Role Of Financial Development On Income Inequality In Malaysia," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 153-168, December.
  7. Zhuang, Juzhong & Gunatilake, Herath & Niimi, Yoko & Ehsan Khan, Muhammad & Jiang, Yi & Hasan, Rana & Khor, Niny & S. Lagman-Martin, Anneli & Bracey, Pamela & Huang, Biao, 2009. "Financial Sector Development, Economic Growth, and Poverty Reduction: A Literature Review," ADB Economics Working Paper Series, Asian Development Bank 173, Asian Development Bank.

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