Journal
JOURNAL OF ECONOMIC GROWTH
Volume 12, Issue 1, Pages 27-49Publisher
SPRINGER
DOI: 10.1007/s10887-007-9010-6
Keywords
financial systems; income distribution; economic development; poverty alleviation
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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.
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