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Financial Development and the Distribution of Income in Latin America and the Caribbean

Gustavo J. Canavire Bacarreza () and Felix Rioja
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Gustavo J. Canavire Bacarreza: World Bank

Authors registered in the RePEc Author Service: Gustavo Javier Canavire-Bacarreza ()

No 3796, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: One of the central concerns in Latin America and the Caribbean (LAC) has been the reduction of poverty and inequality so prevalent in the continent. Using large world samples, the literature has found that financial development increases economic growth, increases the income of the poor, and reduces inequality. This paper studies the effects of financial development on the whole distribution of income in LAC. We find that the income of the poorest quintile has not been affected by expansion in the financial system. However, we do find that financial development has had a disproportionate positive effect on the incomes of the second, third and fourth quintiles. We also find some evidence for the Greenwood-Jovanovic (1991) hypothesis that this positive effect only begins after a country crosses a certain economic development threshold.

Keywords: financial development; distribution of income; inequality (search for similar items in EconPapers)
JEL-codes: G00 O11 O16 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2008-10
New Economics Papers: this item is included in nep-dev and nep-lam
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Published - published in: Well-Being and Social Policy, 2009, 5 (1), 1-18

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