CONTRIBUTION OF FINANCIAL DEPTH AND FINANCIAL ACCESS TO POVERTY REDUCTION IN INDONESIA
This research attempts to analyze possible relationship between financial depth and financial access indicators with poverty in Indonesia. Financial depth indicators include the ratio of saving over gross domestic regional products and the ratio of credit over gross domestic regional products. Financial access indicators include the number of banks and number of cooperatives, while poverty is measured by poverty headcount ratio. This research is utilizing panel provincial level data in Indonesia consisting of 33 provinces for the period of 2007 to 2015 using OLS estimation with fixed and random effect method. The main findings of this research is that financial development variables showed negative and significant relationship with poverty, confirming the contribution of financial depth and financial access in reducing poverty in Indonesia. However, the saving variable showed contradictory result, suggesting that in regions where saving rate is high, poverty rate tend to be high. The possible explanation is that consumption of private and household sector in the research period contribute significantly to Indonesian GDP, while the financial resources obtained from saving is not channeled to the pro poor investment. Therefore, the effect of consumption is more effective in reducing poverty than the effect of saving. This research will provide academic evidence for the policy makers in implementing financial inclusion policy in Indonesia with the objective of improving the quality of financial services to help alleviate poverty.
Arestis, Philip; Demetriades, Panicos O. and Luintel, Kul B. (2001). Financial Development and Economic Growth : The Role of Stock Markets. Journal of Money, Credit and Banking, Vol.33, No.1
Banerjee, Abhijit V. and Duflo, Esther. (2011). Poor Economics : A Radical Rethinking of The Way To Fight Global Poverty. Public Affairs New York
Balisacan, Arsenio M.; Pernia, Ernesto M.; Asra, Abuzar. (2002). Revisiting Growth and Poverty Reduction in Indonesia: What Do Subnational Data Show?, ERD Working Paper Series, No. 25. Asian Development Bank
Cull, R., Ehrbeck, T. and Holle N. (2014). Financial Inclusion and Development : Recent Impact Evidence. Consultative Group to Assist the Poor (CGAP) Focus Note No.92, April 2014
Demirguc-Kunt, A., Klapper, L., Singer, D. and Van Oudheusden, P. (2015). The Global Findex Database 2014 : Measuring Financial Inclusion Around The World. Policy Research Working Paper 7255. World Bank
De Gregorio, J. and Guidotti, P.E. (1995).Financial Development and Economic Growth. World Development, Vol.23, No.3, pp.433-448
Global Financial Development Report.(2014). World Bank
Honohan, P. (2008). Cross-county Variation in Household Access to Financial Services. Journal of Banking and Finance 32, pp.2493-2500
Jalilian, H. and Kirkpatrick, C. (2002).Financial Development and Poverty Reduction in Developing Countries. International Journal of Finance and Economics 7, pp.97-108
Quartey, P. (2005). Financial Sector Development, Savings Mobilization and Poverty Reduction in Ghana. United Nations University World Institute for Development Economic Research, Research Paper No.2005/71
Strauss, J., Witoelar, F., and Sikoki, B. (2016). The Fifth Wave of The Indonesia Family Life Survey : Overview and Field Report Volume 1. Working Research 1143-1/NIA/NICHD RAND Labor and Population
Yunus, Muhammad. (2007). Banker To The Poor : Micro-lending and The Battle Against World Poverty. Public Affairs New York
Copyright (c) 2018 Pinkan Mariskania Pasuhuk
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.