Financial Constraints and Poverty

Kodila-Tedika, Oasis and Ngunza Maniata, Kevin (2018): Financial Constraints and Poverty.

Abstract

This article revisits again relationship between financial sector and poverty, by testing the hypothesis according to which it is primarily financial constraints that affect poverty before the size of the financial sector. We find empirically proofs, which suggest that the differential of financial constraints is negatively linked at the level of poverty. This effect is robust in the control of deepening or financial development. Besides, it has an unstable sign. It persists even in the controls of other variables and economic technical changes. In conclusion, the countries with higher financial constraints are those where poverty is rife.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial development, Poverty, financial constraints
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration

References

Aghion, P., & P. Bolton. (1997). “A Theory of Trickle-Down Growth and Development.” Review of Economic Studies 64:151–72.

Banerjee, A., & A. Newman. (1993). “Occupational Choice and the Process of Development.” Journal of Political Economy 101(2):274–98.

Beck, T., A. Demirgüç-Kunt, & R. Levine, (2007), “Finance, Inequality and the Poor,” Journal of Economic Growth, Vol. 12, No. 1, pp. 27-49.

Beck, T., Demirgüç-Kunt, A. & Levine, R., (2010). Financial institutions and markets across countries and over time: the updated financial development and structure database. World Bank Economic Review 24, 77–92.

Clarke, G., L. Xu, & H. Zou. (2003). Finance and Income Inequality: Test of Alternative Theories. World Bank Policy Research Working Paper No. 2984, World Bank, Washington, DC.

Datt, G., & M. Ravallion. (1992). “Growth and Redistribution Components of Changes in Poverty Measures: A Decomposition with Applications to Brazil and India in the 1980s.”Journal of Development Economics 38(2):275–95.

Dollar, D., & A. Kraay. (2002). “Growth is Good for the Poor.” Journal of Economic Growth 7(3):195–225.

Fields, G. (2001). Distribution and Development: A New Look at the Developing World. NY: Russell Sage Foundation, and Cambridge, MA: MIT Press.

Galor, O., and J. Zeira. (1993) “Income Distribution and Macroeconomics.” The Review of Economic Studies 60(1):35–52.

García-Santana, M & Ramos, R. (2015) Distortions and the size distribution of plants: evidence from cross-country data, Journal of Spanish Economic Association 6:279–312

Guillaumont Jeanneney, S. & Kpodar, S. (2008), Financial Development and Poverty Reduction: Can There Be a Benefit Without a Cost? IMF Working Paper WP/08/62.

Honohan, P. (2004). “Financial Development, Growth and Poverty: How Close are the Links?” In E. C. Goodhard, ed., Financial Development and Economic Growth: Explaining the Links. London: Palgrave

Kakwani, N. (2000). “On Measuring Growth and Inequality Components of Poverty with Application to Thailand.” Journal of Quantitative Economics 16:67–79.

Kaufmann, D., Kraay, A. & Mastruzzi, M., (2010). The Worldwide Governance Indicators: Methodology and Analytical Issues. Policy Research Working Paper Series 5430, The World Bank.

Kodila-Tedika, O. & Asongu, S. (2017), Institution and poverty: A Critical Comment Based on Evolving Currents and Debates?, Social Indicators Research DOI 10.1007/s11205-017-1709-y.

Kodila-Tedika, O. & Asongu, S. (2017), Is poverty in the African DNA (Gene)? South African Journal of Economics, 85 (4), 533–552.

Kodila-Tedika, O. & Mulunda Kabange, M. (2018). Constitutional instability and Poverty: Some Empirical Evidence, MPRA Paper 84501, University Library of Munich, Germany.

La Porta, R., Florencio, L.-d.-S., Shleifer, A. & Vishny, R.W., (1997). Legal determinants of external finance. Journal of Finance 52, 1131–1150.

La Porta, R., Florencio, L.-d.-S., Shleifer, A. & Vishny, R.W., (1998). Law and finance. Journal of Political Economy 106, 1113–1155.

La Porta, R., Lopez-de-Silanes, F. & Shleifer, A., (2008). The economic consequences of legal origins. Journal of Economic Literature 46, 285–332.

Levine, R. (2004). Finance and Growth: Theory and Evidence. NBER Working Paper No. 10766, National Bureau of Economic Research, Cambridge.

Li, H., L. Squire and H. Zou. (1998). “Explaining International and Intertemporal Variations in Income Inequality.” Economics Journal 108:26–43.

McArthur, J.W. and Sachs, J.D. (2001) Institutions and geography: comment on Acemoglu, Johnson, and Robinson (2000). NBER Working Paper 8114. Cambridge: National Bureau of Economic Research.

Ravallion, M., (2004). Pro-poor Growth: A Primer. World Bank Policy Research Working Paper No. 3242.

Ravallion, M., & S. Chen. (1997). “What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?” World Bank Economic Review 11(2):357–82.

Tebaldi, E. & Mohan, R. (2010) 'Institutions and Poverty', Journal of Development Studies, 46: 6, 1047 — 1066.

Zhuang, J., Gunatilake, H., Niimi, Y., Khan, M.E., Jiang, Y., Hasan, R., Khor, N., Lagman-Martin, A., Bracey, P. & Huang, B. (2009), Financial Sector Development, Economic Growth, and Poverty Reduction: A Literature Review, ADB Economics Working Paper Series No. 173.