Financial markets development and its impact in poverty rates reduction: A study in a sample of developing countries
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Abstract
This study seeks to diagnose influences of financial market development in poverty and describe the modality which impact came to pass, either directly or through economic growth and disparities in income distribution. Moreover, this study focuses on building a model that is capable of analyzing the direct and indirect impacts of financial market development in 12 developing countries, six of them are Arabic and the rest are foreign. considering the poverty levels in these countries are convergent during the period from 2005 to 2020, with observations taken for every 5 years from each developing country. To achieve above, the study utilizes Path Analysis methodology and the simple linear regression model due to diagnosing the mechanism of effects exercised by the financial markets development on poverty. With the aim of reaching more accurate and realistic results, and obtaining a sound and logical analysis that can be used to direct economic and financial policies in a direction that is favorable to the poor. The study concluded that the mechanisms through which the impact of financial market development varies depend on the underlying factors. The impact is balanced between the direct channel, where benefits directly reach the poor from the financial system, and the indirect channel, where it occurs through economic growth and income distribution. Based on these findings, the study recommends directing fiscal policy towards increasing tradable assets and expanding the investor base effectively. This can be achieved by providing incentives to private sector companies to participate in financial markets and encouraging them to invest in stocks and bonds. Furthermore, it is advisable to enhance equal access for investors from various social groups to financial markets, offering facilities to investors and increasing investments in financial technology and online trading. Simplifying regulatory procedures and improving the regulatory structure of financial markets, with a focus on updating technology to facilitate transactions and reduce costs, is also recommended. Finally, strengthening financial oversight, promoting electronic governance, and increasing transparency in financial disclosure processes are crucial to ensure the provision of accurate and reliable information to investors, ultimately contributing to the stability and trustworthiness of financial markets.
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