What Financial Structure will be conducive to Poverty Reduction? The effects of Financial Liberalisation

Countries differ in the extent to which their financial systems are bank-based or market-based. This paper presents evidence on the impact of financial structure on poverty reduction. Is a bank-based or market-based financial system preferred? If the theoretical literature on the subject does not offer a precise rethink on this issue, the majority of empirical studies argue for a bank oriented financial system. This paper stains to contribute to the debate on the financial structure and poverty. Particular attention is paid to the role of the financial liberalisation and its interaction with the financial system structure. Using panel data on a sample composed of 38 developing countries over the period 1990-2011 and applying the Generalized Method of Moment technique, we investigate the issue that the used financial structure indicators don’t favour any financial sector. That is, in the presence of liberalised financial system, a bank-based financial system is better in reducing poverty.