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Financial Development, Inequality and Poverty: Some International Evidence

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Financial Development, Inequality and Poverty: Some International Evidence

IMF,

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Does a rising tide lift all boats? Not always, according to this study on finance and inequality.

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8

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  • Innovative

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In theory, the principal purpose of the financial sector is to allocate capital efficiently. So it would seem intuitive that a bigger financial sector would allocate capital better and support more growth. Studies have tended to bolster this idea, but in such a heterogeneous area as finance, it is reasonable to wonder if all activities are equally useful to society. In this innovative research, economists Sami Ben Naceur and RuiXin Zhang gauge financial development’s impacts on poverty and inequity. getAbstract suggests this scholarly text to economists and policy makers.

Summary

A large body of research reveals a link between countries’ financial development and their economic growth, but much less study has gone into examining a nation’s financial advances in relation to its income distribution. Theories on the influence of the former on the latter are split between those that predict a linear relationship and those that foresee an “inverted-U” connection. The linear notion suggests that as financial progress increases, income inequality declines. The inverted-U concept predicts that low levels of financial development disproportionately benefit...

About the Authors

Sami Ben Naceur is an economist at the International Monetary Fund, where RuiXin Zhang was an intern.

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