IDEAS home Printed from https://ideas.repec.org/a/hur/ijaraf/v3y2013i4p119-129.html
   My bibliography  Save this article

Financial Development and Poverty: What Role for Growth and Inequality?

Author

Listed:
  • Abdelhafidh Dhrifi

    (University of Monastir)

Abstract

The paper assesses the effect of financial development on poverty reduction. To do this, we are going to build a model of simultaneous equations on a sample composed of 89 countries over the period 1990-2011. The model is based on a trilateral relationship connecting growth, inequalities and poverty. In order to do so, we suppose that financial development effects on poverty reduction can be decomposed into two opposite effects: a growth effect and a disparity one. Econometric analysis allowed us to highlight three things: first, findings support that while the indirect effect of financial development on poverty is not robust and ambiguous, the direct effect of financial development, through the channels of insurance, access to credit services and savings, is robust to reducing poverty. Second, we note that this effect depends on the magnitude and sign of the effects of financial development on inequality and growth. Third, institutional quality is an important determinant of the relationship between financial development and poverty.

Suggested Citation

  • Abdelhafidh Dhrifi, 2013. "Financial Development and Poverty: What Role for Growth and Inequality?," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 119-129, October.
    • Handle: RePEc:hur:ijaraf:v:3:y:2013:i:4:p:119-129
    as

    Download full text from publisher

    File URL: http://hrmars.com/hrmars_papers/Article_13_Financial_Development_and_Poverty.pdf
    Download Restriction: no
    File URL: http://hrmars.com/hrmars_papers/Article_13_Financial_Development_and_Poverty.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 195-209.
    3. Ravallion, Martin, 1997. "Can high-inequality developing countries escape absolute poverty?," Economics Letters, Elsevier, vol. 56(1), pages 51-57, September.
    4. 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.
    5. Kangni KPODAR, 2004. "Le Developpement Financier Et La Problematique De Reduction De La Pauvrete," Macroeconomics 0407001, University Library of Munich, Germany.
    6. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank, vol. 10(3), pages 565-591, September.
    7. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    8. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    9. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There be a Benefit without a Cost?," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 143-163.
    10. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    11. Ingrid Woolard & Murray Leibbrandt, 1999. "Measuring Poverty in South Africa," Working Papers 99033, University of Cape Town, Development Policy Research Unit.
    12. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, April.
    13. Marguerite S. Robinson, 2001. "The Microfinance Revolution," World Bank Publications - Books, The World Bank Group, number 28956.
    14. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There be a Benefit without a Cost?," Post-Print halshs-00554229, HAL.
    15. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
    16. Odhiambo, Nicholas M., 2009. "Finance-growth-poverty nexus in South Africa: A dynamic causality linkage," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 320-325, March.
    17. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
    18. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There Be a Benefit Without a Cost?," Post-Print halshs-00601306, HAL.
    19. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    20. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    21. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2004. "Finance, inequality, and poverty: cross-country evidence," Policy Research Working Paper Series 3338, The World Bank.
    22. Gazi Salah Uddin & Phouphet Kyophilavong & Nasim Sydee, 2012. "The Casual Nexus of Banking Sector Development and Poverty Reduction in Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 304-311.
    23. Peter Quartey, 2005. "Financial Sector Development, Savings Mobilization and Poverty Reduction in Ghana," WIDER Working Paper Series RP2005-71, World Institute for Development Economic Research (UNU-WIDER).
    24. Nicholas M. Odhiambo, 2010. "Is financial development a spur to poverty reduction? Kenya's experience," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(3), pages 343-353, August.
    25. Ravallion, M. & Datt, G., 1991. "Growth and Redistribution Components of Changes in Poverty Measures," Papers 83, World Bank - Living Standards Measurement.
    26. Mr. Vassili Prokopenko & Mr. Paul Holden, 2001. "Financial Development and Poverty Alleviation: Issues and Policy Implications for Developing and Transition Countries," IMF Working Papers 2001/160, International Monetary Fund.
    27. Datt, Gaurav & Ravallion, Martin, 1992. "Growth and redistribution components of changes in poverty measures : A decomposition with applications to Brazil and India in the 1980s," Journal of Development Economics, Elsevier, vol. 38(2), pages 275-295, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lemnge, Deusdedit Augustine & Raphael, Gwahula, 2023. "Financial Development and Poverty Reduction in Sub-Saharan Africa," African Journal of Economic Review, African Journal of Economic Review, vol. 11(4), September.
    2. Neaime, Simon & Gaysset, Isabelle, 2018. "Financial inclusion and stability in MENA: Evidence from poverty and inequality," Finance Research Letters, Elsevier, vol. 24(C), pages 230-237.
    3. Lemnge, Deusdedit & Raphael, Gwahula & Mutasa, Felician, 2024. "The Moderating Effect of Gender Equality in Reproductive health on the Relationship between Financial Development and Poverty Reduction in sub-Saharan Africa: A Quantile Regression Approach," African Journal of Economic Review, African Journal of Economic Review, vol. 12(2), June.
    4. Dhrifi, Abdelhafidh & Jaziri, Raouf & Alnahdi, Saleh, 2020. "Does foreign direct investment and environmental degradation matter for poverty? Evidence from developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 13-21.
    5. Taofeek Olusola Ayinde & Olumuyiwa Ganiyu Yinusa, 2016. "Financial Development and Inclusive Growth in Nigeria: A Threshold Analysis," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(5), pages 166-189, OCTOBER.
    6. Gulshan Kumar & Shallu Batra, 2023. "Interrelationship Between Human Development, Financial Development and Economic Growth: Empirical Evidences from Indian Economy," Indian Journal of Human Development, , vol. 17(1), pages 60-81, April.
    7. Bamanga Umar & Sabri Nayan, 2018. "Poverty Reduction and Stock Market Development:Evidence from Africa," Pakistan Journal of Humanities and Social Sciences, International Research Alliance for Sustainable Development (iRASD), vol. 6(3), pages :338-356, September.
    8. Hasna Khemili & Mounir Belloumi, 2018. "Cointegration Relationship between Growth, Inequality and Poverty In Tunisia," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 2(1), pages 8-18.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdelhafidh Dhrifi, 2015. "Financial Development and the "Growth-Inequality-Poverty" Triangle," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 1163-1176, December.
    2. Madhu Sehrawat & A. K. Giri, 2018. "The impact of financial development, economic growth, income inequality on poverty: evidence from India," Empirical Economics, Springer, vol. 55(4), pages 1585-1602, December.
    3. Hossein Jalilian & Colin Kirkpatrick, 2005. "Does Financial Development Contribute to Poverty Reduction?," Journal of Development Studies, Taylor & Francis Journals, vol. 41(4), pages 636-656.
    4. Madhu Sehrawat & A. Giri, 2016. "Financial development, poverty and rural-urban income inequality: evidence from South Asian countries," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 577-590, March.
    5. Uddin, Gazi Salah & Shahbaz, Muhammad & Arouri, Mohamed & Teulon, Frédéric, 2014. "Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh," Economic Modelling, Elsevier, vol. 36(C), pages 405-412.
    6. Vivien Kappel, 2010. "The Effects of Financial Development on Income Inequality and Poverty," CER-ETH Economics working paper series 10/127, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Margaret R. Magwedere & Joseph Chisasa & Godfrey Marozva, 2022. "Examining the Causal Relationship between Financial Intermediation and Poverty in Selected Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 75-84.
    8. Boukhatem, Jamel, 2016. "Assessing the direct effect of financial development on poverty reduction in a panel of low- and middle-income countries," Research in International Business and Finance, Elsevier, vol. 37(C), pages 214-230.
    9. Acheampong, Alex O. & Appiah-Otoo, Isaac & Dzator, Janet & Agyemang, Kwabena Koforobour, 2021. "Remittances, financial development and poverty reduction in Sub-Saharan Africa: Implications for post-COVID-19 macroeconomic policies," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1365-1387.
    10. de Moraes, Claudio Oliveira & Cruz, Guilherme, 2023. "What do we know about the relationship between banks and income inequality? Empirical evidence for emerging and low-income countries," Journal of Economics and Business, Elsevier, vol. 123(C).
    11. Inoue, Takeshi & Hamori, Shigeyuki, 2010. "How has financial deepening affected poverty reduction in India? : empirical analysis using state-level panel data," IDE Discussion Papers 249, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    12. Kar, Muhsin & NazlIoglu, Saban & AgIr, Hüseyin, 2011. "Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis," Economic Modelling, Elsevier, vol. 28(1-2), pages 685-693, January.
    13. Abosedra, Salah & Shahbaz, Muhammad & Nawaz, Kishwar, 2015. "Modeling Causality between Financial Deepening and Poverty Reduction in Egypt," MPRA Paper 67166, University Library of Munich, Germany, revised 09 Oct 2015.
    14. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
    15. World Bank, 2007. "Bangladesh : Strategy for Sustained Growth, Volume 1. Summary Report," World Bank Publications - Reports 7765, The World Bank Group.
    16. Imam, Patrick & Kpodar, Kangni, 2016. "Islamic banking: Good for growth?," Economic Modelling, Elsevier, vol. 59(C), pages 387-401.
    17. Oludele Akinboade & Emilie Kinfack, 2014. "An Econometric Analysis of the Relationship Between Millennium Development Goals, Economic Growth and Financial Development in South Africa," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 118(2), pages 775-795, September.
    18. Alessandra Cepparulo & Juan Carlos Cuestas & Maurizio Intartaglia, 2017. "Financial development, institutions, and poverty alleviation: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 49(36), pages 3611-3622, August.
    19. Appiah, Michael & Frowne, Doreen Idan & Tetteh, Derrick, 2020. "Re-examining the Nexus Between Financial Development and Poverty Reduction: Evidence from Emerging Economies," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 27(2).
    20. Appiah-Otoo, Isaac & Chen, Xudong & Song, Na & Dumor, Koffi, 2022. "Financial development, institutional improvement, poverty reduction: The multiple challenges in West Africa," Journal of Policy Modeling, Elsevier, vol. 44(6), pages 1296-1312.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hur:ijaraf:v:3:y:2013:i:4:p:119-129. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hassan Danial Aslam (email available below). General contact details of provider: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.