Finance, Inequality, and Poverty: Cross-Country Evidence

47 Pages Posted: 25 May 2006 Last revised: 3 Jul 2010

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

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Date Written: December 2004

Abstract

While substantial research finds that financial development boosts overall economic growth, we study whether financial development disproportionately raises the incomes of the poor and alleviates poverty. Using a broad cross-country sample, we distinguish among competing theoretical predictions about the impact of financial development on changes in income distribution and poverty alleviation. We find that financial development reduces income inequality by disproportionately boosting the incomes of the poor. Countries with better-developed financial intermediaries experience faster declines in measures of both poverty and income inequality. These results are robust to controlling for other country characteristics and potential reverse causality.

Suggested Citation

Beck, Thorsten and Demirgüç-Kunt, Asli and Levine, Ross Eric, Finance, Inequality, and Poverty: Cross-Country Evidence (December 2004). NBER Working Paper No. w10979. Available at SSRN: https://ssrn.com/abstract=633638

Thorsten Beck

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Asli Demirgüç-Kunt

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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