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

One of the central concerns in Latin America an 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 \u85nancial development increases economic growth, increases the income of the poor, and reduces inequality. This paper studies the e¤ects of nancial development on the whole distribution of income in LAC. We \u85nd that the income of the poorest quintile has not been a¤ected by expansion in the \u85nancial system. However, we do \u85nd that \u85nancial development has had a disproportionate positive e¤ect on the incomes of the second, third and fourth quintiles. We also \u85nd some evidence for the Greenwood-Jovanovic (1991) hypothesis that this positive e¤ect only begins after a country crosses a certain economic development threshold