The role of finance in economic development, income inequality and poverty reduction

Abstract

The financial sector is seen as performing critical functions in facilitating economic growth and, both directly through broadening access to finance and indirectly through growth, contributing to reductions in inequality and poverty by mobilizing savings, facilitating payments and trade of goods and services, and promoting efficient allocation of resources. This dissertation analyses the role of finance in economic development, income inequality and poverty reduction by differentiating between banks and stock markets. It also studies the impacts of the two components of the financial sector, from both theoretical and empirical points of view. The second chapter examines the impact of financial development on economic growth across income levels by providing empirical analyses for a large panel of countries. The third chapter studies the role of finance in income inequality by building an occupational choice model under financial market imperfections and providing empirical analyses for the relationship between financial development and income inequality. The fourth chapter analyses the link between banks, stock markets and poverty reduction by providing empirical analyses for a panel of emerging countries.