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Finance, Inequality, and Poverty: Cross-Country Evidence

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  • Thorsten Beck
  • Asli Demirguc-Kunt
  • Ross Levine

Abstract

While substantial research finds that financial development boosts overall economic growth, we study whether financial development disproportionately raises the incomes of the poor and alleviates poverty. Using a broad cross-country sample, we distinguish among competing theoretical predictions about the impact of financial development on changes in income distribution and poverty alleviation. We find that financial development reduces income inequality by disproportionately boosting the incomes of the poor. Countries with better-developed financial intermediaries experience faster declines in measures of both poverty and income inequality. These results are robust to controlling for other country characteristics and potential reverse causality.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10979.

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Date of creation: Dec 2004
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Handle: RePEc:nbr:nberwo:10979

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