Assessment of the Effects of Financial Development on Poverty Reduction in Nigeria

Abstract

This study examines the effect of Financial Sector Development on Poverty Reduction in Nigeria. The study used annual time series data from 1980 to 2018 with Poverty as the Dependent variable while the ratios of credit to the private sector, total micro-credits and stock market capitalization to GDP are the proxies of financial development. Government expenditure is used as a control variable. Autoregressive and distributive lag model (ARDL) was employed as estimation techniques. The study revealed that credits to private sector, stock market capitalization and poverty reduction are cointegrated implying that financial sector development has a long run relationship with poverty reduction but money supply has only a short run effect on poverty reduction. Government expenditure does not have significant effect on poverty reduction both in short and long run. The study also recommends for the need for government to facilitate the development of the financial sector by setting appropriate regulatory and macroeconomic policies that will bring about improvement in institutional quality, and avoid instability in the sector.