Financial Development and the Distribution of Income in Latin America and the Caribbean

20 Pages Posted: 3 Nov 2008

See all articles by Gustavo J. Canavire-Bacarreza

Gustavo J. Canavire-Bacarreza

Inter-American Development Bank (IDB); IZA Institute of Labor Economics

Felix K. Rioja

Georgia State University - Department of Economics

Abstract

One of the central concerns in Latin America and the Caribbean (LAC) has been the reduction of poverty and inequality so prevalent in the continent. Using large world samples, the literature has found that financial development increases economic growth, increases the income of the poor, and reduces inequality. This paper studies the effects of financial development on the whole distribution of income in LAC. We find that the income of the poorest quintile has not been affected by expansion in the financial system. However, we do find that financial development has had a disproportionate positive effect on the incomes of the second, third and fourth quintiles. We also find some evidence for the Greenwood-Jovanovic (1991) hypothesis that this positive effect only begins after a country crosses a certain economic development threshold.

Keywords: distribution of income, financial development, inequality

JEL Classification: O11, O16, G00

Suggested Citation

Canavire Bacarreza, Gustavo Javier and Rioja, Felix Korman, Financial Development and the Distribution of Income in Latin America and the Caribbean. IZA Discussion Paper No. 3796. Available at SSRN: https://ssrn.com/abstract=1293588 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Gustavo Javier Canavire Bacarreza (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Felix Korman Rioja

Georgia State University - Department of Economics ( email )

University Plaza
35 Broad Street
Atlanta, GA 30303
United States
404-651-0417 (Phone)
404-651-4985 (Fax)

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