Finance, Inequality, and Poverty: Cross-Country Evidence

Finance, Inequality, and Poverty: Cross-Country Evidence

While substantial research finds that financial development boosts overall economic growth, the authors study whether financial development is pro-poor: Does financial development disproportionately raise the income of the poor? Using a broad cross-country sample, the authors find that the answer is yes: Financial intermediary development reduces income inequality by disproportionately boosting the income of the poor and therefore reduces poverty. This result is robust to controlling for simultaneity bias and reverse causation.

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Bibliographic Details
Main Authors: Levine, Ross, Beck, Thorsten, Demirguc-Kunt, Asli
Language:English
en_US
Published: World Bank, Washington, DC 2004-06
Subjects:ABSOLUTE POVERTY, CAPITAL MARKETS, CORPORATE FINANCE, DEVELOPMENT BANKS, ECONOMIC DEVELOPMENT, ECONOMIC PERFORMANCE, FINANCIAL DEVELOPMENT, FINANCIAL ECONOMICS, FINANCIAL INTERMEDIATION, FINANCIAL MARKETS, FINANCIAL SECTOR, FINANCIAL SERVICES, GROSS DOMESTIC PRODUCT, GROWTH POLICIES, GROWTH RATE, INCOME DISTRIBUTION, INCOME INEQUALITY, INCOME LEVELS, INFANT MORTALITY, INFLATION RATE, MACROECONOMIC POLICIES, MACROECONOMIC STABILITY, MARKET COMPETITION, POLITICAL ECONOMY, POVERTY ALLEVIATION, PRIVATE SECTOR, PRODUCTIVITY, ABSOLUTE VALUE, ADVERSE SELECTION, AGGREGATE GROWTH, AGGREGATE MEASURE, ANNUAL GROWTH, ANNUAL GROWTH RATE, ASYMMETRIC INFORMATION, AVERAGE ANNUAL, AVERAGE GROWTH, AVERAGE INCOME, AVERAGE INCOME GROWTH, CAPITAL ACCUMULATION, CENTRAL BANK, COMPETITIVENESS, CORRUPTION, COUNTRY REGRESSIONS, COUNTRY-SPECIFIC EFFECTS, CREDIT CONSTRAINTS, CREDIT MARKET, CROSS-COUNTRY STUDIES, DEBT, DEPENDENT VARIABLE, DESCRIPTIVE STATISTICS, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DISTRIBUTION EFFECT, DISTRIBUTION FUNCTION, DISTRIBUTIONAL CHANGE, DISTRIBUTIONAL COMPONENT, DISTRIBUTIONAL EFFECT, DISTRIBUTIONAL EFFECTS, ECONOMIC GROWTH, ECONOMIC HISTORY, ECONOMIC PERSPECTIVES, ECONOMIC STUDIES, EDUCATIONAL ATTAINMENT, EMPIRICAL GROWTH LITERATURE, EMPIRICAL LITERATURE, EMPIRICAL RESULTS, EQUAL ACCESS, ERROR TERM, EXPLANATORY VARIABLES, EXPORTS, FINANCIAL DEPTH, GDP, GDP PER CAPITA, GINI COEFFICIENT, GROWTH, GROWTH COMPONENT, GROWTH DETERMINANTS, GROWTH EFFECT, GROWTH PRO-POOR, GROWTH RATES, HUMAN CAPITAL, INCOME, INCOME GROUPS, INCOME GROWTH, INCOME GROWTH RATE, INCOME QUINTILES, INCOME SHARE, INCOME SHOCKS, INCOMES, INEQUALITY, INEQUALITY CHANGES, INEQUALITY FALLS, INEQUALITY MEASURES, INTERNATIONAL DEVELOPMENT, INVESTMENT OPPORTUNITIES, LEGAL ORIGIN, LINEAR RELATIONSHIP, LORENZ CURVE, LOW INCOMES, MACROECONOMICS, MEAN INCOME, MIDDLE INCOME COUNTRIES, MONETARY ECONOMICS, NORMAL DISTRIBUTION, 0 HYPOTHESIS, PER CAPITA GROWTH, PER CAPITA GROWTH RATE, POINT ESTIMATE, POLICY RESEARCH, POPULATION GROWTH, POPULATION GROWTH RATES, POSITIVE EFFECT, POSITIVE IMPACT, POSITIVE RELATIONSHIP, POVERTY, POVERTY GAP, POVERTY INCIDENCE, POVERTY REDUCTION, POVERTY-GROWTH-INEQUALITY TRIANGLE, PRIMARY ENROLLMENT, PRIMARY SCHOOL, PRO-GROWTH POLICIES, PUBLIC POLICIES, PUBLIC SECTOR, REAL GDP, REDUCING POVERTY, RELATIVE INCOME, REVERSE CAUSATION, SIGNIFICANCE LEVEL, SIGNIFICANT CORRELATION, SIGNIFICANT EVIDENCE, SIGNIFICANT IMPACT, SOCIAL SERVICES, STANDARD DEVIATION, TRADE OPENNESS, VALUATION, WEALTH, Microdata Set,
Online Access:http://documents.worldbank.org/curated/en/2004/06/4966140/finance-inequality-poverty-cross-country-evidence
https://hdl.handle.net/10986/14038
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Summary:While substantial research finds that financial development boosts overall economic growth, the authors study whether financial development is pro-poor: Does financial development disproportionately raise the income of the poor? Using a broad cross-country sample, the authors find that the answer is yes: Financial intermediary development reduces income inequality by disproportionately boosting the income of the poor and therefore reduces poverty. This result is robust to controlling for simultaneity bias and reverse causation.

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