Financial Development and Poverty Reduction: Can There Be a Benefit Without a Cost?
IMF Working Papers, March 1, 2008
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Bibliographic details
- Authors: Sylviane Guillaumont Jeanneney, Kangni R Kpodar
- Published: March 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869248.001
Research Question and Scope
- Investigates how financial development affects poverty reduction:
- Directly through the McKinnon conduit effect.
- Indirectly through economic growth.
- Empirical sample covers developing countries for the period 1966 through 2000.
Key Findings
- The poor benefit from banking-system functions that:
- Facilitate transactions.
- Provide savings opportunities.
- The poor "to some extent fail to reap the benefit from greater availability of credit."
- Financial development is accompanied by financial instability, which is detrimental to the poor.
- Overall conclusion: "the benefits of financial development for the poor outweigh the cost."
Themes and Evidence
- Direct channel: McKinnon conduit effect — financial development reduces transaction costs and improves saving mechanisms benefiting the poor.
- Indirect channel: Financial development fosters economic growth, which in turn can reduce poverty.
- Distributional concern: Greater availability of credit does not fully translate into benefits for the poor.
- Risk channel: Increased financial development correlates with financial instability that harms the poor.
Subject Areas and Keywords
- Subject: Credit, Financial sector development, Personal income, Poverty, Poverty measurement
- Keywords: GDP, headcount poverty, poverty gap, WP
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IMF Working Paper: "Financial Development and Poverty Reduction: Can There Be a Benefit Without a Cost?" (Guillaumont Jeanneney and Kpodar, March 1, 2008), Working Paper No. 2008/062.