The Impact of Poverty on Financial Development in Selected Developing Countries

Document Type : Research Paper

Authors

1 Associate Professor of Economics, Ayatollah Borujerdi University, Borujerd, Iran

2 MA in Economics, Allameh Tabatabai University, Tehran, Iran

10.30465/jnet.2023.44867.2015

Abstract

High poverty rates limit people's ability to meet their daily needs. Therefore, it has attracted the attention of policymakers and governments. In this study, unlike previous studies, the effect of poverty on financial development has been investigated. In addition, the current research seeks to answer the question of whether the poverty on financial development depends on the level of trade openness of countries. To achieve the aforementioned goals, a threshold panel model has been used for 25 developing countries from 2002 to 2020, and also to avoid the endogeneity problem, the 2SLS method and the use of instrumental variables have been used. The results indicate that as long as the degree of commercial openness is less than 65%, the increase in poverty causes a sharper decrease in financial development in the economy, and when the degree of openness is greater than 65%, the increase in poverty causes a smaller decrease in financial development. Because in the conditions of openness, the bottlenecks caused by poverty can be compensated by increasing the degree of openness and financial opportunities of an open economy. In other words, increasing the degree of openness of the economy reduces the limiting effects of poverty on financial development. Also, the model estimation results show that the logarithm of per capita income, savings and population density have positive and significant effects on financial development.

Keywords

References

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History

  • Receive Date: 04 March 2023
  • Revise Date: 29 April 2023
  • Accept Date: 17 June 2023

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