The Economic Research Guardian – Vol. 8(2)2018 Semi-annual Online Journal, www.ecrg.ro ISSN: 2247-8531, ISSN-L: 2247-8531 Econ Res Guard 8(2): 40-52 Econ Res Guard 40 2018 Poverty Reduction, Financial Development and Economic Growth in Algeria: A Gregory Hansen Co-Integration Regime Shift Analysis Ayad Hicham Department of Economics, The University Center in Maghnia, Algeria E-mail: a_hichem210@hotmail.fr Abstract This paper applies annual data from 1970 to 2017 in Algeria to investigate the long-run relationship between financial development, poverty reduction, economic growth and trade openness, we use the regime shift analysis for both unit root tests (Zivot-Andrews (1992), Clemente-Montanes-Reyes (1998) and Lee-Strazicich (2001)) and co- integration test (Gregory Hansen (1996)) to detect the long run and short run elasticities, the results confirm that there is a long-run relationship among the variables with a regime shift in 2009, and the financial development cannot reduce the poverty rates while the economic growth is pro-poor. Keywords: Financial development, Poverty reduction, Regime shift analysis JEL classification: C58, E44, I32 1. Introduction How can we reduce poverty? This is the oldest question posed by the humanity, whether through religions, sciences, organizations, …, in economics, there are many reliable channels to reduce poverty, for example, in 2007, Rodrick (2007) said that historically nothing was worked better than economic growth in enabling societies to improve the life chances of their members, including those at the very bottom, this declaration is according to many previous studies, as Adams (2002) on examining the impact of economic growth on poverty using data from 50 developing countries when the elasticity of poverty to growth is -2.59, by returning to 1996 and the study of Ravaillon and Chen (1996), the elasticity of poverty to economic growth is -2.60 and it is generally between -2.00 and - 3.00, so any increase in the average level of income in a country contributes to benefit indirectly to its weakest members, but many studies as Squire (1993), Bruno et al. (1998), Helteberg (2002), Bourguignon (2003), Gries and Redline (2010), Chee Man and Sial (2012), Ayad (2016) and many others showed that growth will be pro-poor if it accompanied by a decrease in inequality (income, asset and gender inequality) to have a maximum impact on poverty. On the other hand, a few studies (Dollar and Kraay (2002), Honohan (2004) and Beck et al. (2007)) examines the relationship among poverty, economic growth and financial development, according to these studies, the financial development is considered as a sub-channel to reduce poverty rates, and