Revisiting the impact of financial development on income inequality and poverty reduction: empirical evidence from selected sub-Saharan African countries

Abstract

PurposeThis paper aims to investigate the effects of financial access, financial depth, financial efficiency and financial stability pillars on income inequality and poverty among a panel of sub-Saharan African (SSA) countries.Design/methodology/approachThis paper captures cross-sectional dependence among the income groups through the dynamic common correlated effect approach for a data set of 28 selected SSA countries from 2000 to 2017.FindingsThis study reveals that the financial development pillars exert positive and significant impacts on income inequality across the income groups. The results show that the effects of the financial development metrics on poverty are different across the income groups. The results also indicate that the pillars improve poverty reduction for low- and lower-middle-income countries. However, there is a minimal effect on poverty reduction in upper-middle-income countries. The differences among these income categories suggest the need for policymakers to account for income levels when prescribing policies that could engender financial development and poverty reduction in the region.Originality/valueThis paper examines the effects of financial development on both income inequality and poverty by using the newly developed World Bank financial development strategic metrics. It captures cross-sectional dependence in the full sample of selected SSA countries and their income categories.