Friday, July 01, 2005
The Financial Sector and Poverty Reduction in Developing and Transition Economies: Issues and Policy Implications
By: Paul Holden, The Enterprise Research Institute and Vassili Prokopenko, International Monetary Fund
IMF Working Paper Working Paper No. 01/160, October 2001
This paper highlights some of the issues and surveys the current state of thinking on the relationship between financial markets and poverty alleviation. Given the current prominence of the issue, the paucity of the literature, both theoretical and empirical is surprising. The paper first approaches the problem indirectly by identifying the issues and surveying the literature on the links between financial markets and economic growth, under the assumption that higher growth reduces poverty. Because many who are critical of the international finance institutions have rejected the notion that growth helps the poor, the paper examines the evidence regarding the impact of economic expansion on the poor and the role that financial markets play in encouraging more rapid growth. It then examines the evidence regarding the effects of financial markets on poverty and income distribution more directly. It pays particular attention to the microfinance phenomenon and discusses the issues regarding microcredit and poverty. It looks at some of the policy implications of the analysis, including how the access of the poor to financial services, bank regulation and other financial market instruments influence poverty alleviation. Two appendices are included, the first of which discusses some of the elements of the unfinished reform agenda, while the second sets out ways in which inflation harms the poor.
IMF Working Paper Working Paper No. 01/160, October 2001
This paper highlights some of the issues and surveys the current state of thinking on the relationship between financial markets and poverty alleviation. Given the current prominence of the issue, the paucity of the literature, both theoretical and empirical is surprising. The paper first approaches the problem indirectly by identifying the issues and surveying the literature on the links between financial markets and economic growth, under the assumption that higher growth reduces poverty. Because many who are critical of the international finance institutions have rejected the notion that growth helps the poor, the paper examines the evidence regarding the impact of economic expansion on the poor and the role that financial markets play in encouraging more rapid growth. It then examines the evidence regarding the effects of financial markets on poverty and income distribution more directly. It pays particular attention to the microfinance phenomenon and discusses the issues regarding microcredit and poverty. It looks at some of the policy implications of the analysis, including how the access of the poor to financial services, bank regulation and other financial market instruments influence poverty alleviation. Two appendices are included, the first of which discusses some of the elements of the unfinished reform agenda, while the second sets out ways in which inflation harms the poor.