Financial development and poverty alleviation

In this thesis I empirically examine the role of formal financial sector development in poverty alleviation. Three important contributions to the literature are made. In Chapter 2 I find that financial development aids the incomes of the poor in certain regions, whilst it may be detrimental to the poor's income in others. This contrasts with the evidence that economic growth is universally important for poverty reduction. Chapter 3 investigates the relationship between finance and health. My results show that a 10% increase in financial depth reduces infant and child mortality by approximately 1%. Additionally, I find that those who have bank accounts are less likely to cancel doctors' appointments, cease the use of regular medication, and cut back on staple food consumption. This is through accessing deposits or borrowing to pay for medical treatment. These findings are consistent with the theory that a well developed financial system may permit individuals to maintain their health levels when faced with an unexpected illness. These findings build on the literature by examining non-monetary aspects of poverty. Chapter 4 examines the relationship between financial access and poverty reduction. I find that a 10% increase in financial breadth may reduce absolute poverty by 0.2%. The results suggest that increasing ATM provision (and the most basic services of financial intermediation) is important for poverty reduction relative to offering more complicated financial instruments to the poor. These findings make a signifcant contribution to our understanding of how the financial system may be used as a tool to alleviate poverty.