The relationship between financial development and poverty: Panel analysis

Poverty is a problem faced by all humankind. Even though the welfare of the world rises day by day, the gap between rich and poor gradually increases and numbers of the poor people propagate. Financial system undertakes a mission of bringing together those who demand and supply funds in meeting the fund necessity of the economy. The efficient use of those funds in the financial markets augments the economic growth and also helps to reduce poverty indirectly via various channels. In this sense, in this study we examine the relationship between financial development and poverty by using the unbalanced panel data of 131 countries belonging to various years. In our study we used four indicators of financial development (i.e., financial depth, financial stability, financial efficiency and access to financial market) for the period of 2000-2011. On the other hand we used six distinct proxies for poverty. According to the estimation results, we identified a negative statistically significant association between financial development and poverty. In other words, the findings imply that the poverty level in a country decreases as financial development increases.