Finance and poverty : an empirical study using panel data

Using panel data from 54 developing countries for the period 1993-2004, this paper provides evidence that beyond the indirect effect that transmitted through economic growth, financial development has a direct effect on poverty alleviation. But the direct effect can be identified when financial development is measured by the ratio of aggregate money balance (currency plus deposits) to GDP rather than the ratio of private credits to GDP. Our analysis also reveals that financial development and financial instability are positively correlated and that while financial development is good, financial instability is detrimental to the poor