Financial Performance and Earnings of Poor People: a Case Study of Pakistan

The relationship between financial development and income growth of the poor segment of population is analyzed both theoretically and empirically in this paper. Advanced technique like ARDL procedure is employed for co-integration while utilizing time series sample covering 1971-2005 period. Findings of the paper strongly suggest that financial development not only improves the income levels of the poor people through investment in physical and human capital directly but indirectly by means of increased economic growth. It is a clear indication of the fact that McKinnon Conduit Effect is prevalent in the country. Contrary to this, during financial instability or banking crises poor deprived indigenous people neither have access to credit nor their deposit are secured. Although increased level of economic growth resulting on account of monetary instability creates income inequality among the poor disadvantaged people by lowering their purchasing power. Thus, enhanced agricultural activity, employment generating manufacturing sector and favorable investment climate are the motivating factors in pushing the incomes of said personals in the upward direction.