does financial structure matter for poverty ? evidence from developing countries
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Does Financial Structure Matter for Poverty ? Evidence from Developing Countries . Roland Kangni Kpodar (IMF) & Raju Jan Singh (World Bank) World Bank Conference on Financial Structure and Economic Development, Washington, June 16, 2011. Objectives of this Paper. - PowerPoint PPT PresentationTRANSCRIPT
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DOES FINANCIAL STRUCTURE MATTER FOR POVERTY ?EVIDENCE FROM DEVELOPING COUNTRIES
Roland Kangni Kpodar (IMF) &
Raju Jan Singh (World Bank)
World Bank Conference on Financial Structure and Economic Development, Washington, June 16,
2011
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Objectives of this PaperWe look at the association between the structure of the financial system and poverty;Focusing on developing countries;Including institutional variables.
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Results The structure of the financial
system does play a role in reducing poverty;
Bank-based systems are associated with lower levels of poverty;
As institutions grow stronger, market-based systems could benefit the poor.
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Theoretical Background
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Why would finance matter? Improves access to credit; Allows risk diversification; Creates jobs; Reduces discrimination.
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Why would the financial structure matter?
Financial markets operate in an imperfect information setting;
Institutional arrangements play an important role : Collect information Define property rights Enforce contracts
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A bank-based system could thus… Provide wider access to credit; Allow for cheaper risk
diversification; Create more jobs; Reduce discrimination further.
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Empirical Analysis
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Data Panel data from 47 developing
economies Observations averaged over
five-year periods from 1984 to 2008
IFS, WDI, Financial Structure Database, ICRG
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Variables
Dependant variable Headcount Index
Control variables GDP per capita Inflation Infrastructure Trade openness
Variables of interest Quality of institutions Financial structure
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The Model
where : Pi,t – the indicator of poverty for a country i at a period t; Yi,t – the level of income per capita; Xi,t – a set of control variables FSi,t – a set of variables accounting for financial structure Law – the institutional variable: Rule of Law ui - unobserved country-specific effect; εi,t - the error term
Estimation Method: System GMM
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Results (without institutions)
Log of Poverty Headcount (1) (2) (3) (4) GDP per capita (log) -1.250 -1.222 -1.194 -1.207 [0.168]*** [0.126]*** [0.130]*** [0.144]***Inflation (log) -1.449 -1.358 -1.756 -1.677 [0.900] [0.814]* [0.817]** [0.859]*Inflation squared (log) 0.963 0.780 1.036 0.993 [0.556]* [0.502] [0.518]** [0.524]*Road/area -0.008 -0.009 -0.006 -0.008 [0.004]* [0.004]*** [0.004]* [0.004]**Trade openness -0.006 -0.002 -0.003 -0.006 [0.004] [0.004] [0.004] [0.003]**Composite indicator of structure-size 0.381 [0.152]** Composite indicator of structure-activity -0.027 [0.056] Composite indicator of structure-efficiency 0.086 [0.109] Overall measure of financial structure 0.081 [0.102]Constant 13.414 13.178 12.818 13.151 [1.389]*** [1.093]*** [1.066]*** [1.267]*** Observations 121 119 117 111Number of countries 47 45 44 43Sargan/Hansen test 0.43 0.59 0.51 0.47AR2 0.07 0.18 0.21 0.16
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Results (with institutions)Log of Poverty Headcount (5) (6) (7) (8) Composite indicator of structure-size 0.544 [0.216]** Composite indicator of structure-activity 0.560 [0.335]* Composite indicator of structure-efficiency 0.653 [0.218]*** Overall measure of financial structure 0.552 [0.296]*Institutions - Law and order (ICRG) -0.276 -0.270 -0.229 -0.236 [0.085]*** [0.093]*** [0.113]** [0.104]**Composite indicator of structure-size*Institutions -0.110 [0.065]* Composite indicator of structure-activity*Institutions -0.151 [0.091]* Composite indicator of structure-efficiency*Institutions -0.159 [0.056]*** Overall measure of financial structure*Institutions -0.136 [0.076]*
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Figure 1. Poverty Headcount Ratio as a Function of Financial Structure and Institutional Quality
0.00.5
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Pove
rty h
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(log
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Robustness Tests
Excluded outliers Added additional control
variables Used alternative measures of
absolute and relative poverty
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Thank You