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A Tri-Variate Nexus of Microfinance-Growth-Inequality: The South-Asian Experience
Abstract
Policymakers throughout the world have actively been in pursuit of improvements of financial markets in the developing regions, but often with disappointing results. In this background, this chapter claims that microfinance can play a significant role in financial development, and that by concentrating on microfinance, development policy can consolidate the links between financial development, growth, and thus inequality reduction. The inequality computation used is based on the generalized entropy index (standard assumption of weight equal to 2 is applicable). Panel cointegration and panel causality are the techniques that have been applied in a vector error correction mechanism (VECM) set-up using panel data for fifteen years across seven South-Asian nations (i.e., Bhutan, India, Afghanistan, Bangladesh, Nepal, Pakistan, and Sri Lanka). The findings validate the existence of a cointegrated relation coupled with a tri-variate causality linking the focus variables in this model in the way that microfinance initiatives, their outreach is beneficial for the reduction of inequality but that inequality reduction does not promote economic growth per se.
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