Financial Development, Economic Growth and Poverty Level in Selected Low-income Sub-Sahara African Countries (1980-2012).

Abstract

The study examines the interactions among financial development, economic growth and poverty level in twelve selected low-income sub-Sahara African countries (SSA) between1980 and 2012. The study employed annual data from 1980 to 2012 obtained from World Bank Development Indicators (WDI). Cointegration test was applied to determine the long run relationship among these three key variables while panel vector autoregression Model analysis was conducted to examine the dynamic interactions among financial development, economic growth and poverty level with particular reference to economic growth as a channel linking financial development and poverty. The evidence obtained in this study shows that increase in financial development reduces economic growth and ultimately increases poverty level in low income countries. This suggests that economic growth is a weak channel connecting financial development and poverty level in all these SSA countries. It is therefore suggested that policy makers should re-design feasible financial sector reforms that would establish sound economic linkages with existing key sectors in these SSA economies which would eventually translate into reduction in poverty level. Of particular importance is the sectoral allocation of credits to key sectors of the economy like energy sector, infrastructural sector, among others.