Impact of Financial Development and Economic Growth on Poverty in Middle Income African Countries

Abstract

This study examined the impact of financial development and economic growth on poverty reduction in middle-income African countries using panel data from 1990 to 2021. The study was limited to Botswana, Kenya, Nigeria, South Africa and Tunisia. Im, Pesaran and Shin unit root test and Pedroni cointegration test approach were used for data analysis. Also, data were analysed using Panel ARDL model based on MG and PMG estimators proposed by Peseran and Smith (1995) and Peseran, Smith and Shin (1999). Results of the unit root test shows the variables are stationary of mixed order, while cointegration test indicates that the variables are linearly cointegrated in the long run. The study revealed that financial development proxy by broad money as share of GDP and broad money as ratio to reserve contributed to poverty reduction in the long the-run. On the other hand, Economic growth proxy by gross domestic product per capita also contributed to poverty reduction in the long run. On the contrary, financial development proxy by domestic credit to private sector as share of GDP had detrimental impact of poverty. To reduce poverty, the study recommended the need for the middle-income countries to implement long run sustainable financial and growth policies. Also, there is need for the implementation of sustainable financial policies that will encourage more credits to private sector at single digit interest rate to promote inclusive financial system, grow the economy and increase income redistribution and reduction in poverty.