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Finance, Inequality, and Poverty: Cross-Country Evidence

  • Thorsten Beck
  • Asli Demirguc-Kunt
  • Ross Levine

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
Date of revision:
Publication status: published as Beck, Thorsten, Asli Demirguc-Kunt and Ross Levine. "SMEs, Growth, And Poverty: Cross-Country Evidence," Journal of Economic Growth, 2005, v10(3,Sep), 199-229
Handle: RePEc:nbr:nberwo:10979
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