Does financial development reduce poverty? Empirical evidence from Indonesia
This paper contributes to the literature by providing empirical evidence on the relationship between financial development, economic growth, and poverty in Indonesia in the period of 1980–2014. This issue is of importance for developing economies such as Indonesia given the high rate of poverty i...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English English |
| Published: |
Springer
2017
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/60135/ http://irep.iium.edu.my/60135/ http://irep.iium.edu.my/60135/ http://irep.iium.edu.my/60135/7/60135-Does%20Financial%20Development%20Reduce%20Poverty.pdf http://irep.iium.edu.my/60135/13/60135_Does%20Financial%20Development%20Reduce%20Poverty_scopus.pdf |
| Summary: | This paper contributes to the literature by providing empirical evidence on
the relationship between financial development, economic growth, and poverty in
Indonesia in the period of 1980–2014. This issue is of importance for developing
economies such as Indonesia given the high rate of poverty in the country despite the
rapid growth of the financial sector. The Autoregressive distributed lag (ARDL)
approach to cointegration is used to examine the long-run relationship between the
financial sector development and poverty, while the Granger causality based on the
VECM approach is used to ascertain the direction of the causal relationship between the
variables. In arriving at robust findings, we investigated two models, each using
different indicators of financial sector growth, namely money supply (M2), and ratio
of domestic credit to private sector to gross domestic product. The study finds that there
was a long-run relationship between the financial sector, economic growth, and poverty
in Indonesia, while in the short run, a bi-directional causal relationship exists between
the financial sector and poverty. Based on these findings, it is recommended that in
efforts to reduce poverty, the government should focus on facilitating the channelling of
funds from the financial sector into specific segment of the population to ensure fair
accessibility of credit, especially to the low-income group in Indonesia. |
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