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Financial development, growth, and poverty: how close are the links?

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  • Patrick Honohan

Abstract

The causal link between finance and growth is one of the most striking empirical macroeconomic relationships uncovered in the past decade. As this branch of the literature matures, the focus shifts from growth to other aspects of economic prosperity, and from financial depth to multidimensional measures of financial development. The author reviews the evolution of the literature and contributes by: Showing that financial depth is negatively associated with headcount poverty, even after taking account of mean income and inequality. Illustrating the pitfalls in equating financial development with financial depth. Proposing alternative measures of financial development that, though summary, capture its multidimensional nature.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3203.

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Date of creation: 01 Feb 2004
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Handle: RePEc:wbk:wbrwps:3203

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Keywords: Payment Systems&Infrastructure; Fiscal&Monetary Policy; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Achieving Shared Growth; Governance Indicators; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies;

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  1. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
  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. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
  4. Clarke, George R. G. & Cull, Robert & Martinez Peria, Maria Soledad, 2001. "Does foreign bank penetration reduce access to credit in developing countries"evidence from asking borrowers," Policy Research Working Paper Series 2716, The World Bank.
  5. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  6. Dehejia, Rajeev H. & Gatti, Roberta, 2002. "Child labor : the role of income variability and access to credit in a cross-section of countries," Policy Research Working Paper Series 2767, The World Bank.
  7. Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
  8. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  9. Clarke, George & Cull, Robert & Martinez Peria, Maria Soledad & Sanchez, Susana M, 2005. "Bank Lending to Small Businesses in Latin America: Does Bank Origin Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 83-118, February.
  10. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
  11. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  12. Giovanni Favarra, 2003. "An Empirical Reassessment of the Relationship Between Finance and Growth," IMF Working Papers 03/123, International Monetary Fund.
  13. Caprio, Gerard Jr. & Honohan, Patrick, 2002. "Banking policy and macroeconomic stability - an exploration," Policy Research Working Paper Series 2856, The World Bank.
  14. repec:fth:wobaco:1083 is not listed on IDEAS
  15. World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895, October.
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