Financial Development and Poverty Reduction: Can There be a Benefit Without a Cost?

38 Pages Posted: 24 Mar 2008

See all articles by Sylviane Guillaumont Jeanneney

Sylviane Guillaumont Jeanneney

Université d'Auvergne - Clermont 1 - Centre d'Etudes et de Recherches sur le Developpement International (CERDI)

Kangni Kpodar

International Monetary Fund (IMF)

Date Written: March 2008

Abstract

This article investigates how financial development helps to reduce poverty directly through the McKinnon conduit effect and indirectly through economic growth. The results obtained with data for a sample of developing countries from 1966 through 2000 suggest that the poor benefit from the ability of the banking system to facilitate transactions and provide savings opportunities but to some extent fail to reap the benefit from greater availability of credit. Moreover, financial development is accompanied by financial instability, which is detrimental to the poor. Nevertheless, the benefits of financial development for the poor outweigh the cost.

Keywords: Poverty reduction, Economic growth, Financial stability, Development financing

Suggested Citation

Guillaumont Jeanneney, Sylviane and Kpodar, Kangni, Financial Development and Poverty Reduction: Can There be a Benefit Without a Cost? (March 2008). IMF Working Paper No. 08/62, Available at SSRN: https://ssrn.com/abstract=1112204

Sylviane Guillaumont Jeanneney (Contact Author)

Université d'Auvergne - Clermont 1 - Centre d'Etudes et de Recherches sur le Developpement International (CERDI) ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

Kangni Kpodar

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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