Finance, Inequality, and Poverty Revisited: A Threshold Model Approach

Abstract

There have been significant influences of financial
development on the income growth of the poor, the reduction of
income inequality, and a decrease in the number of people who
live on less than $1 per day. These effects were explored by Beck,
Demirguc-Kunt, and Levine in their Finance, Inequality, and
Poverty paper that examines the income growth of the poorest
quintile, overall income inequality, and the number of people
living on less than $1 per day. Our research derives from this
paper with the addition of quantifiable measures of financial
development using threshold estimations. We further examine
threshold values using an instrumental variable estimation to
account for endogeneity bias. The results from our cross-country
analyses allow us to make comparisons between different
countries regarding the necessary measure of financial
development that is needed for growth in the poorest sectors of
each economy.