Finance, inequality and the poor

  • Beck T
  • Demirg??-Kunt A
  • Levine R
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Abstract

Financial development disproportionately boosts incomes of the poorest quintile and reduces income inequality. About 40% of the long-run impact of financial development on the income growth of the poorest quintile is the result of reductions in income inequality, while 60% is due to the impact of financial development on aggregate economic growth. Furthermore, financial development is associated with a drop in the fraction of the population living on less than $1 a day, a result which holds when conditioning on average growth. These findings emphasize the importance of the financial system for the poor.

Author-supplied keywords

  • Economic development
  • Financial systems
  • Income distribution
  • Poverty alleviation

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