This paper addresses the empirical question of whether microfinance has any impact on income inequality at the macrolevel. Very little research has been conducted on the relationship between the macrolevel scale of microfinance and income inequality over time in a country and across countries. Based on panel‐data techniques, with annual data from 85 countries from 2001 to 2012 and a broad theoretical framework on microfinance and inequality, we provide empirical evidence that suggests that increases in the macrolevel scale of microcredit in a country contribute to reducing income inequality within that country over time. Finally, since microfinance may be endogenous, we used instruments from the existing literature to control for this problem.

This article studies the relationship between foreign aid and microfinance flows and income inequality. Using a broad theoretical framework on inequality, and panel data from 87 countries from 1995 to 2012, we study the dynamics of aid and microfinance and how these relate to income inequality. Our results highlight important differences across world regions and the need to consider specificities of the context when assessing the impact of both aid and microfinance on inequality. In this line, we provide an analysis for three different countries: Bolivia, Bangladesh, and Indonesia.

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Literature on the relationship between aid and inequality is scarce and contradictory. Most studies are based on dynamic panel data using internal instruments to deal with endogeneity. In addition to these techniques, this article introduces the persistency of inequality and a double-censored Gini index. We apply for the first time a dynamic and double-censored panel data estimated applying the Simulated Maximum Likelihood method to a sample of 18 Latin American countries for 1990-2008. The main findings are that public expenditure in consumption and foreign direct investment had a positive effect on inequality whereas aid had a negative (egalitarian) effect. Neither taxes nor public social spending had a significant effect on inequality.

The article starts from the Multidimensional Poverty Index (MPI) methodology and measures ( Santos et al. 2015 ) available, and uses them to compare the current disbursements of Official Development Aid (ODA) with MPI-related deprivations and indicators. In particular, the six deprivation dimensions are matched with the current sectorial classifications contained in the OECD-CRS database. This empirical exercise allows making a comparison between ODA donors’ current disbursements (priorities) and normative disbursements, if the MPI were taken as the rule in order to attain the objective of real poverty eradication. Important political consequences of this counterfactual exercise are deduced: Latin American development agencies (ministries or departments) should start to register ODA flows using the multidimensional poverty dimensions (housing, basic services, standard of living, education, and employment, and social protection); donors (both North-South and South-South Cooperation) should focus their resources and priorities on the MPI structure, increasing recipients’ ownership of development strategies and interventions. This information and way of delivery may make it possible to focus the evaluation of ODA flows more deeply on their impact on poverty, in line with Busan’s recommendations and the post-2015 development agenda (SDG 1).