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The impact of financial development, economic growth, income inequality on poverty: evidence from India

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  • Madhu Sehrawat

    (T. A. Pai Management Institute)

  • A. K. Giri

    (Birla institute of Technology and Science (BITS))

Abstract

This paper examines the impact of financial development, economic growth and income inequality on poverty in India from 1970 to 2015 by employing the autoregressive distributed lag (ARDL) bounds testing procedure. The findings reveal a robust long-run relationship between financial development, economic growth, inequality and poverty. Results show that financial development and economic growth help in poverty reduction in India, whereas income inequality and inflation aggravate poverty. Empirical evidence of the Granger-causality test supports the presence of unidirectional causality from financial development and economic growth to poverty. Moreover, bidirectional causality exists between inequality and poverty. The present study provides evidence on which the policymakers may proceed with detailed investigation of how specific financial sector policies and interventions can be deployed as effective instruments for achieving favorable economic growth and income distribution. The study recommends that policies geared toward increasing financial development and economic growth should be adopted to reduce the high level of poverty and inequality currently prevailing in India.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:empeco:v:55:y:2018:i:4:d:10.1007_s00181-017-1321-7
    DOI: 10.1007/s00181-017-1321-7
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    More about this item

    Keywords

    Financial development; Income inequality; Poverty; Economic growth; Autoregressive distributed lag (ARDL); India;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D30 - Microeconomics - - Distribution - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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