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Long-Run Effects of Financial Development and Economic Growth on Poverty and Income Inequality in Latin America

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  • Jhon Mario Panzza Jimenez, Jhon Mario Panzza Jimenez
  • Leonardo Bornacki de Mattos

Abstract

We use a panel cointegration approach to assess the long-term effects of financial development and economic growth on poverty and income inequality in Latin America. Financial development is measured by three indicators and a comprehensive index derived from principal component analysis. The sample is divided into high, upper-middle, and lower-middle-income groups based on World Bank criteria. The findings show that, in the long run, economic growth and financial development follow an inverted U-shaped relationship with poverty and inequality, initially worsening them but eventually reducing them beyond a certain threshold. Middle-income countries experience the strongest impacts.

Suggested Citation

  • Jhon Mario Panzza Jimenez, Jhon Mario Panzza Jimenez & Leonardo Bornacki de Mattos, 2026. "Long-Run Effects of Financial Development and Economic Growth on Poverty and Income Inequality in Latin America," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 80(1), March.
    • Handle: RePEc:fgv:epgrbe:v:80:y:2026:i:1:a:93256
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