Assessing the direct effect of financial development on poverty reduction in a panel of low- and middle-income countries |
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| Institution: | 1. Department of Banking and Financial Markets, College of Islamic Economics and Finance—Umm Al-Qura University, PO Box 715, Mecca 21955, Saudi Arabia;2. High Institute of Management, University of Tunis, Tunis, Tunisia;1. Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur 721302, India;2. Department of Economics, Trent University, Peterborough, Ontario K9J 7B8, Canada;3. Department of Economics, University of Melbourne, Victoria 3053, Australia;4. Department of Economics, University of Cambridge, Cambridge CB3 9DD, UK;5. School of Business, Monash University Malaysia, Jalan Lagoon Selatan 47500, Malaysia;6. Department of Financial Management, University of Pretoria, Pretoria 0028, South Africa;1. School of Economics, University of Cape Town, South Africa;2. Department of Finance and Tax, University of Cape Town, South Africa;1. Università di Parma, Parma, Italy;2. Università di Milano-Bicocca, Milano, Italy;3. CeRP-Collegio Carlo Alberto, Moncalieri, Italy;4. Rimini Centre for Economic Analysis, Rimini, Italy;1. School of Business and Law, Department of Banking and Finance, University for Development Studies, Post Office Box UPW 36, Wa, Upper West Region, Ghana;2. Wits Business School, University of the Witwatersrand, 2 St. David’s Place, Parktown, Johannesburg 2193 South Africa;1. School of Business and Management, Jiaxing Nanhu University, China;2. School of Banking and Finance, University of International Business and Economics, China;3. School of Social Sciences, The University of Manchester, United Kingdom;4. Finance Department, College of Business, King Abdulaziz University, P.O. Box 344, Rabigh 21911, Saudi Arabia;5. Hailey College of Banking and Finance, University of Punjab, Lahore, Pakistan |
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| Abstract: | This paper empirically assesses the directly contribution of financial development to poverty reduction in 67 low- and middle-income countries over the period 1986–2012. The main goal of the paper is to identify and quantify the channels through which financial development affects poverty. The results obtained suggest the important contribution of financial development to the reduction of poverty, and this, independently of the econometric techniques used. On the other hand, instability related to the financial development would penalize the poor population and would annihilate the positive effects of financial development. The final battery of tests is motivated by the issues of overidentification and weak instruments in system-GMM estimator. The results show the validity of the exclusion restrictions and the absence of instrument proliferation. Also, they may call into question the pro-poor public investment policy in low- and middle-income countries. |
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| Keywords: | Financial development Poverty System GMM |
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