Re-examining the Nexus Between Financial Development and Poverty Reduction: Evidence from Emerging Economies

Michael Appiah (), Doreen Idan Frowne and Derrick Tetteh
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Michael Appiah: Jiangsu University, China; DorstellConsult Ltd., Koforidua, Ghana
Doreen Idan Frowne: Koforidua Technical University, Ghana
Derrick Tetteh: University of Cape Coast, Ghana

Asian Journal of Applied Economics/ Applied Economics Journal, 2020, vol. 27, issue 2, 125-144

Abstract: During the past two decades, the research on financial development and growth has gained a lot of coverage. This research looks at the degree to which financial development helps alleviate poverty. Cointegration estimation of the system, called the FMOLS, was applied over the period 1995–2015 to a panel of five African emerging economies. Using liquid liability as a percentage of GDP and bank domestic credit as a percentage of GDP as the main financial development indicators, the findings indicate that bothfinancial development indicators minimize poverty. Other factors such as economic growth and inflation are not statistically significant. Government spending, on the other hand, does not tend to affect poverty irrespective of the measure of financial growth employed. These findings suggest that while financial growth is capable of reducing poverty, it must be combined with a reduction in inflation, as well as other macroeconomic variables. The use of liquid liability and bank domestic credit as measures offinancial growth is robust to the results.

Keywords: financial development; poverty reduction; emerging economies; panel cointegration (search for similar items in EconPapers)
JEL-codes: G20 I32 O15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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