Working Paper: NBER ID: w10979
Authors: Thorsten Beck; Asli Demirgüç-Kunt; Ross Levine
Abstract: 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.
Keywords: No keywords provided
JEL Codes: O11; O16; G00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial development (O16) | Growth rate of incomes of the poorest quintile (D31) |
| Financial development (O16) | Income inequality (D31) |
| Financial development (O16) | Fraction of population living on less than $1 a day (I32) |
| Financial development (O16) | Growth rate of Gini coefficient (D31) |