Financial liberalization and the geography of poverty

This contribution attempts to investigate the channels though which financial liberalization (FL) policies might affect poverty. Surprisingly little work has been done so far on this relationship. One channel of interaction between FL and poverty is the growth channel. This literature has been, to a great extent, based on the view that FL mobilizes savings and allocates capital to more productive uses, both of which help increase the amount of physical capital and its productivity. The trickle-down effect of economic growth caused, or accompanied, by FL increases incomes, reduces poverty and improves income distribution. However, one would expect the economic and institutional changes brought about by FL to have a more complex effect on the living conditions of the poor. We suggest that three further channels should be added to the list: the financial crises channel, the access to credit and financial services channel, and the income share of labour channel. As far as we know, no attempt has been made previously in the literature to go beyond the ‘growth channel’. Thus, the originality of this contribution is to make the case of these extra three channels, explain them, and comment on their significance.