Financial development and poverty reduction in developing countries: New evidence from banks and microfinance institutions
By Ficawoyi Donou-Adonsou, Kevin Sylwester. 2016
186 citations recorded by the source corpus.
Abstract The literature on financial development and growth has received a lot of attention over the past two decades. Unlike growth, not much of consideration has been given to poverty reduction. Moreover, most of the past studies focus on bank and stock market development. The advent of microfinance institutions (MFIs) lets to think about the potential role MFIs can play in a countrywide economy. In this study, we consider to what extent banks and MFIs reduce poverty. We apply the instrumental variables approach, namely the fixed-effects two-stage least squares, to a panel of 71 developing countries over the period 2002–2011. Using credit to GDP as the main financial development indicator, the results indicate that banks reduce poverty when poverty is measured by the headcount ratio and poverty gap. As for the squared poverty gap, there is no significant effect of banks. On the other hand, MFIs do not appear to have any impact on poverty regardless of the measure of poverty employed. These results imply that while banks have some ability to reduce poverty, MFIs do not, at least at the aggregate level. Our results are robust to the use of assets to GDP as an alternative measure of financial development.
Subfields: Accounting, Economics and Econometrics, Urban Studies
View Paper: https://www.semanticscholar.org/paper/37359d0f4cdd62028bd284c71ce8503ce9b49bb2
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In Accounting
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Citations in the corpus
- The role of financial development in poverty reduction (2017, background): “…liabilities to GDP, the results are more supportive that finance reduces poverty than when using credit to the private sector.1 A recent study by Donou-Adonsou and Sylwester (2016) provides evidence that financial sector development may reduce poverty using a plethora of poverty measures as…”