Finance Inequality and Poverty

Authors: Thorsten Beck, Asl1 Demirgüç-Kunt, and Ross Levine
World Bank Policy Research Working Paper 3338, June 2004

Abstract: While substantial research finds that financial development boosts overall economic growth, we study whether financial development is pro-poor: Does financial development disproportionately raise the income of the poor? Using a broad cross-country sample, we find that the answer is yes: Financial intermediary development reduces income inequality by disproportionately boosting the income of the poor and therefore reduces poverty. This result is robust to controlling for simultaneity bias and reverse causation.