## 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

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### 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.*

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