THE FINANCIAL DEVELOPMENT AND POVERTY NEXUS: The Role of the Institutions

Muhammad Tariq MAJEED*, Iram SHEHZADI**, and Hafiz Muhammad Abubakar SIDDIQUE***

This study contributes to the literature by providing an interactive impact of financial development and institutions on poverty for a panel of 35 developed and 79 developing countries over the period 1984-2013 using two-stage least squares, system generalized method of moments, and simultaneous equations approach. The results show that financial development and institutions mitigate poverty, with the latter being more efficient than the former. The institutions strengthen the ability of the financial system to alleviate poverty. Further, the empirics state that both access (outreach) and depth (credit extension) of the financial sector matter for poverty reduction.

Keywords: Financial Development, Institutions, Poverty, System GMM