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

  • Patrick Honohan

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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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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  1. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  2. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
  3. Caprio, Gerard Jr. & Honohan, Patrick, 2002. "Banking policy and macroeconomic stability - an exploration," Policy Research Working Paper Series 2856, The World Bank.
  4. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  5. 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.
  6. Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
  7. Clarke, George R. G. & Cull, Robert & Martinez Peria, Maria Soledad & Sanchez, Susana M., 2002. "Bank lending to small businesses in Latin America : does Bank origin matter?," Policy Research Working Paper Series 2760, The World Bank.
  8. 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.
  9. Giovanni Favara, 2003. "An Empirical Reassessment of the Relationship Between Finance and Growth," IMF Working Papers 03/123, International Monetary Fund.
  10. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  11. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
  12. 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.
  13. World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895, April.
  14. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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