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Finance, Inequality, and Poverty: Cross-Country Evidence

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Author Info
Thorsten Beck
Asli Demirguc-Kunt
Ross Levine

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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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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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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
G00 - Financial Economics - - General - - - General

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