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

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Listed author(s):
  • 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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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
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. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  2. 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.
  3. 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.
  4. repec:hrv:faseco:30728041 is not listed on IDEAS
  5. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
  6. 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 1131-1150, July.
  7. 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.
  8. 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.
  9. repec:hrv:faseco:30747188 is not listed on IDEAS
  10. Caprio, Gerard Jr. & Honohan, Patrick, 2002. "Banking policy and macroeconomic stability - an exploration," Policy Research Working Paper Series 2856, The World Bank.
  11. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  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, August.
  14. Giovanni Favara, 2003. "An Empirical Reassessment of the Relationship Between Finance and Growth," IMF Working Papers 03/123, International Monetary Fund.
  15. Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
  16. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
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