The nonlinear relationship between poverty and financial globalisation: A panel quantile regression approach

Abstract

AbstractUsing data from 109 countries from 1980 to 2018, we examine the nonlinear relationship between financial globalisation and poverty. Financial globalisation is further segregated into de facto and de jure dimensions to study their differential impact on poverty. We have two main findings with important implications. First, our results point to significant nonlinearities, indicating that the relationship between financial globalisation and poverty is non‐monotonic. There exists a threshold above which the marginal effect of financial globalisation on poverty is negative. Moreover, the effect of financial globalisation on poverty is stronger for countries with high institutional characteristics. Second, we also show that the effect of financial globalisation is non‐monotonic and heterogeneous across different quantiles of poverty distribution. The effect of financial globalisation is relatively stronger at the higher quantile of poverty distribution for the overall sample. However, we find the existence of a U‐shaped and an inverted U‐shaped relationship between financial globalisation and poverty across quantiles, conditional on a country's economic development and institutional quality. The results are robust to alternative measures of poverty and financial globalisation. We account for unobserved heterogeneity and use multiple econometric approaches to validate our results.