Abstract
In recent decades, several studies have highlighted the relationship between the development of the financial system and economic growth. Theoretical and empirical analyses suggest that financial system spurs economic growth, generating impacts on income growth and reducing poverty rates. This study investigated the effectiveness of the development of the financial system as a tool to promote economic growth, increase income and reduce poverty, using data on the Brazilian states from 1995 to 2008. We employ canonical correlation in order to compare the theoretical predictions with the empirical behavior of the variables of interest over time. The results show that the development of the financial system has demonstrated a sound predictive power of the variance of the compounds of the variables related to income and poverty.
Keywords:
Financial development; Poverty; Income; Economic growth; Canonical correlation
