Does Financial Liberalization Stimulate Economic Growth and Reduce Poverty in Six Sub-Saharan African Countries?

Abstract

This paper examines the linkage among financial liberalization, economic growth and poverty reduction inSub-Saharan African countries (SSA). The study applys the recent panel Co-integration and vector errorcorrection mechanism to address the heterogeneity and cross-border interdependence over the period of 1980 to2010. The results reveal that economic growth is positively associated with poverty reduction and financialliberalization coefficients are positively related to economic growth. It implies that financial liberalizationcauses economic growth. However, the coefficients of financial liberalization are not significant in the povertyequation suggests that financial liberalization does not have direct impact on poverty reduction in the sixSub-Saharan African countries. This implies that the financial liberalization effects of poverty are uponcontingent on the distributional changes introduced by the growth and the configuration of institutions andpolicies that supported the liberalization process and particularly, the existence or otherwise of goodgovernance.