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Financial Development, Income Inequality and Poverty: Empirical Evidence from the Southern African Development Community (SADC)

IJED, Vol. 15 No. 1, (2022)

Even though the role that financial development plays in boosting economic growth has received considerable empirical attention in the Southern African Development Community (SADC), but the same cannot be said about the impact that financial development has on poverty and income inequality. This paper therefore empirically examines the financial development-poverty-income inequality nexus in 15 SADC countries from 1995 to 2018. Specifically, the paper analyzes the impact of three important dimensions of financial development (i.e. access, depth, and stability) on poverty and inequality. The paper finds that all the three dimensions of financial development reduce inequality in the SADC region by disproportionately increasing incomes of the poor. Also, SADC countries with better-developed financial intermediaries experience faster declines in poverty and inequality. Moreover, financial stability has a larger poverty and inequality-reducing effect relative to financial access and depth. The results are robust when macroeconomic and institutional factors; and reverse-causality are controlled for.

Keywords: Financial Development; Income Inequality; Poverty; Cross-country Regression; SADC

JEL Classification Numbers: G10; G20; I30; D30

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