Financial Development, Income Inequality, And Poverty Alleviation: Evidence From My Country's Provincial And Contiguous Poverty-stricken Areas

Although the majority of Theoretical and empirical studies suggest a positive linkage between finance and economic growth,the influence of financial development on income inequality and poverty alleviation is not consistent.It is generally believed that financial development may affect inequality and poverty in two ways,directly and indirectly,the indirect way mainly refers to the financial development to raise economic growth,which may reduce income inequality and poverty through the "trickle down” effect;the direct way of financial development on income inequality and poverty alleviation mechanism can be expressed finance-inequality-poverty nexus(FIP).based on the related theories,this paper constructs two models to respectively reflect the indirect mechanism and direct mechanism.Although the role of financial development to the income inequality and poverty alleviation has two kinds of ways,the specific relationship is divided into three kinds,one is the positive linear correlation,namely financial development can reduce income inequality and poverty;the second is a negative linear correlation between financial development ? income inequality and poverty alleviation,namely the financial development has widened income inequality and poverty alleviation;the last one is that empirical studies also provide evidence on whether the linkage between financial development and income inequality is non-linear.The above three relationships have been supported by existing empirical literatures.Therefore,financial development,income inequality and poverty alleviation have not been consistent.This is related to the integrity of regional data,the appropriateness of index selection,and the construction of models.This paper uses the panel data of provinces in China for 1995-2012 years and concentrated destitute areas in 80 poor counties of Sichuan province for 2004-2014 years,to construct a panel data simultaneous equations model.the results of this paper show that financial development reduces income inequality and poverty in related areas,but in the specific relationship is different between the provinces and poor areas.At provinces,the relationship between financial development and income inequality has an inverted U relationship,and poor regions in Sichuan show a linear positive correlation.Financial development contributes to poverty alleviation.there is a linear relationship at the provinces and inverted U type nonlinear relationship in poor regions of Sichuan.