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This study examines the contribution of financial development to poverty reduction in Indonesia using the autoregressive distributed lag (ARDL) bound testing approach to the cointegration framework. It also employs annual data of several financial development measures such as domestic credit, broad money, and financial development indexes from 1986 to 2018. Our findings suggest that financial development and poverty reduction have a cointegration relationship, regardless of the financial development indicators used. Furthermore, we find that domestic credit, broad money, financial institution depth, financial market depth, financial market access, and financial market efficiency reduced poverty. It suggests that financial development reduced poverty through its indirect channel, i.e., the economic growth effect.

Dynamic poverty analysis distinguishes two kind of poverty: chronic and  transient poverty. Chronic poverty is long term poverty while transient poverty is  short term poverty. Theoretically, these two kind of poverty need different policy.  Chronic poverty needs human capital development whereas transient poverty needs  social safety net. This study aims to estimate chronic and transient poverty in East  Java and to analyze its determinants. This research used Component Approach to  estimate chronic and transient poverty. Tobit regression was employed to analyze its  determinants. This study utilized Survei Sosial Ekonomi Nasional (Social Economic  National Survey of Indonesia) year 2008 and year 2010. The result of this study  indicates that poverty in East Java is largely comprised of chronic poverty. Chronic  component of poverty is 76 percent and transient component of poverty is 24 percent.  The high chronic component of poverty is found in regency of, Malang, Kediri,  Sumenep, and Pasuruan. The regression result indicates that chronic and transient  poverty are influenced by education of household head, gender of household head,  access to credit and health insurance ownership. JEL Classification: C01, I32, I38, J24,