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Citation Information

Type Book
Title The impact of financial structure on poverty reduction: a study using household data from Peru, 1985-2000 *.
Publication (Day/Month/Year) 2004
URL http://citeseerx.ist.psu.edu/viewdoc/summary?doi=
This paper estimates/calibrates a growth model with endogenous financial structure using household data from Peru. The idea is to feature the role of financial infrastructure in generating GDP growth and increasing inequality as observed in Peru during the 1990’s through the lens of an economic model of households ’ saving/investment decisions. The typical approach to estimate the contribution of financial sector expansion to GDP growth is to run simple cross-country regression based on stationary relationship among variables. This paper takes an alternative approach that has two main contributions. First, actual data is thought of as a transitional phenomenon – whole history is considered as one sample – which allows studying whether the simulated economy with specific shocks can generate the same time paths of actual aggregate data. The analysis provides implications for the evolution of income inequality and its interaction with financial development. Second, the paper provides a benchmark to investigate whether observed levels and rates of financial expansion have been adequate. Provided that government and private sector resources are limited, quick expansion may not be possible or desirable. The approach in the paper explicitly solves the household’s saving/investment problem and, by

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