This paper tests the relationship between financial development, quality of institutions and poverty. To this end, we reviewed the literature and selected indicators of poverty, financial development and quality of institutions. Empirically, we used the three-stage least squares method to examine a sample of 132 countries observed over the 1980–2014 period. First, we proved that financial development does not improve the situation of the poor, while the effect of institution quality on poverty and financial development depends on the choice of indicators. Our robustness analysis pointed to the sensitivity of our results to the different financial development, quality of institutions and poverty indicators.
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The Trickle Down’s theory of development is widely used in the 70th with the liberal politics of Ronal Reagan. This approach is recommended by The Chicago School guaranteeing that the wealth of the upper social classes would eventually benefit society as a whole. The main idea was to demonstrate that tax policies favoring the rich always end up favoring the poorest.
It should be noted that some authors preferred the use of the six indicators of Kauffman et al. (2009) from the Worldwide Governance Indicators, Heritage Foundation, International Country Risk Guide.
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Kaidi, N., Mensi, S. & Ben Amor, M. Financial Development, Institutional Quality and Poverty Reduction: Worldwide Evidence. Soc Indic Res 141, 131–156 (2019). https://doi.org/10.1007/s11205-018-1836-0
- Financial development
- Quality of institutions
- Simultaneous equation modeling