Money makes the world go round: Assessing how financial sector development directly and indirectly contributes to poverty reduction

• Main Authors: Ang, Roosevelt Nelson S., Balingit, Eunice B., Chua, Aimee Jane W.
• Format: text
• Language: English
• Published: Animo Repository 2008
• Subjects: Financial institutions; Poverty
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7678
• Institution: De La Salle University

Poverty is the most pressing issue that the world is suffering today. To address the problem, there have been decades of development efforts that have been directed towards significant improvements in the world economy. The 189 member countries of the Unite Nations have adopted Millennium Development Goals committed to creating substantial progress in eradicating poverty and other development goals. Studies have shown that the financial sector plays a significant role in an economies growth by providing savers with instrument access, promoting efficient allocation of capital, encouraging production specialization new technology adoption and enabling small savers to pool funds. Through this role, the development of the financial sector can aid in alleviating poverty directly and indirectly through economic growth and income inequality. Utilizing panel data from 1997 to 2001 for 37 developing countries found in Africa, Asia, Europe, North America, and South America, the research has discovered that financial sector development measured by domestic credit as percentage of GDP has a positive effect on economic growth. The results further show that there is a prevailing Kuznets Curve that is evident in developing countries. Most importantly, the research provides empirical evidence that financial sector development contributes directly to poverty reduction by increasing access of the poor to financial credit. Overall, this research adds to the evidence on the role the financial sector development plays on poverty reduction.