IDEAS home Printed from https://ideas.repec.org/a/eme/ijsepp/v37y2010i1p41-53.html
   My bibliography  Save this article

Financial deepening and poverty reduction in Zambia: an empirical investigation

Author

Listed:
  • Nicholas M. Odhiambo

Abstract

Purpose - The purpose of this paper is to examine the inter‐temporal causal relationship between financial sector development and poverty reduction in Zambia. The paper attempts to answer one critical question: does financial sector development in Zambia lead to poverty reduction? Design/methodology/approach - The paper uses the newly developed autoregressive distributed lag‐bounds testing procedure, which has numerous advantages, especially when the sample size is small. In addition, the paper uses three proxies of financial development, namely broad money supply (M2/GDP), domestic credit to the private sector as a ratio of gross domestic product (DCP/GDP) and domestic money bank assets (DMBA), against private per capita consumption, a proxy for poverty reduction. Findings - When the broad money supply ratio (M2/GDP) is used as a proxy for financial sector development, poverty reduction seems to cause the development of the financial sector. However, when the DCP and the DMBA are used, financial development seems to cause poverty reduction, and not the other way round. Practical implications - The empirical results of this paper show that the causal relationship between financial development and poverty reduction is sensitive to the choice of proxy used for financial development. Originality/value - This paper is the first of its kind to empirically examine the causal relationship between financial deepening and poverty reduction in Zambia using modern econometrics techniques.

Suggested Citation

  • Nicholas M. Odhiambo, 2010. "Financial deepening and poverty reduction in Zambia: an empirical investigation," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(1), pages 41-53, January.
  • Handle: RePEc:eme:ijsepp:v:37:y:2010:i:1:p:41-53
    DOI: 10.1108/03068291011006166
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/03068291011006166/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://www.emerald.com/insight/content/doi/10.1108/03068291011006166/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://libkey.io/10.1108/03068291011006166?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Boopen Seetanah, 2008. "Financial development and economic growth: an ARDL approach for the case of the small island state of Mauritius," Applied Economics Letters, Taylor & Francis Journals, vol. 15(10), pages 809-813.
    2. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    3. Shenggen Fan & Peter Hazell & Sukhadeo Thorat, 2000. "Government Spending, Growth and Poverty in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 1038-1051.
    4. Narayan, Paresh Kumar & Smyth, Russell, 2008. "Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks," Energy Economics, Elsevier, vol. 30(5), pages 2331-2341, September.
    5. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Mar.
    6. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    7. Sylviane GUILLAUMONT JEANNENEY & Kangni KPODAR, 2004. "Développement financier, instabilité financière et réduction de la pauvreté," Working Papers 200429, CERDI.
    8. Nicholas Odhiambo, 2007. "Supply‐leading versus Demand‐following Hypothesis: Empirical Evidence from Three SSA Countries," African Development Review, African Development Bank, vol. 19(2), pages 257-280.
    9. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue May.
    10. Paresh Kumar Narayan & Russell Smyth, 2006. "Higher Education, Real Income and Real Investment in China: Evidence From Granger Causality Tests," Education Economics, Taylor & Francis Journals, vol. 14(1), pages 107-125.
    11. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    12. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Jun.
    13. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    14. Morley, Bruce, 2006. "Causality between economic growth and immigration: An ARDL bounds testing approach," Economics Letters, Elsevier, vol. 90(1), pages 72-76, January.
    15. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    16. Odhiambo, Nicholas M., 2008. "Financial depth, savings and economic growth in Kenya: A dynamic causal linkage," Economic Modelling, Elsevier, vol. 25(4), pages 704-713, July.
    17. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    18. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
    19. Odhiambo, Nicholas M., 2009. "Finance-growth-poverty nexus in South Africa: A dynamic causality linkage," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 320-325, March.
    20. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Nov.
    21. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2004. "Finance, inequality, and poverty: cross-country evidence," Policy Research Working Paper Series 3338, The World Bank.
    22. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    23. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Sep.
    24. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Dec.
    25. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Jan.
    26. anonymous, 1997. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Aug.
    27. Ravallion, Martin & Datt, Gaurav, 2002. "Why has economic growth been more pro-poor in some states of India than others?," Journal of Development Economics, Elsevier, vol. 68(2), pages 381-400, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gazi Salah Uddin & Phouphet Kyophilavong & Nasim Sydee, 2012. "The Casual Nexus of Banking Sector Development and Poverty Reduction in Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 304-311.
    2. Uddin, Gazi Salah & Shahbaz, Muhammad & Arouri, Mohamed & Teulon, Frédéric, 2014. "Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh," Economic Modelling, Elsevier, vol. 36(C), pages 405-412.
    3. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    4. Alauddin, Mohammad, 2004. "Environmentalizing economic development: a South Asian perspective," Ecological Economics, Elsevier, vol. 51(3-4), pages 251-270, December.
    5. Muuka, Gerry N., 1997. "Wrong-footing MNCs and local manufacturing: Zambia's 1992-1994 structural adjustment program," International Business Review, Elsevier, vol. 6(6), pages 667-687, December.
    6. Alex Rosenberg, 2014. "From Rational Choice to Reflexivity: Learning from Sen, Keynes, Hayek, Soros, and most of all, from Darwin," Economic Thought, World Economics Association, vol. 3(1), pages 1-21, March.
    7. Wendy Olsen & University of Manchester, 2006. "Pluralist Methodology for Development Economics: The Example of Moral Economy of Indian Labour Markets," Economics Series Working Papers GPRG-WPS-053, University of Oxford, Department of Economics.
    8. Zhu, Nong, 2002. "The impacts of income gaps on migration decisions in China," China Economic Review, Elsevier, vol. 13(2-3), pages 213-230.
    9. Chakrabarti, Snigdha & Chakrabarti, Subhendu, 2002. "Rural electrification programme with solar energy in remote region-a case study in an island," Energy Policy, Elsevier, vol. 30(1), pages 33-42, January.
    10. Amaechi Okonkwo, 2012. "The Lower Niger River dredging and indigenous wetland livelihoods in Nigeria: the Anam communities in Ugbolu, Delta State, as a case study," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 14(5), pages 667-689, October.
    11. Marcotullio, Peter J. & Schulz, Niels B., 2007. "Comparison of Energy Transitions in the United States and Developing and Industrializing Economies," World Development, Elsevier, vol. 35(10), pages 1650-1683, October.
    12. Simon Fan, C., 2005. "Survival of the gene, intergenerational transfers and precautionary saving," Journal of Development Economics, Elsevier, vol. 76(2), pages 451-479, April.
    13. Odhiambo, Nicholas M. & Nyasha, Shiella, 2018. "Oil prices and economic growth in Kenya: A trivariate simulation," Working Papers 24411, University of South Africa, Department of Economics.
    14. Odhiambo, Nicholas M., 2009. "Finance-growth-poverty nexus in South Africa: A dynamic causality linkage," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 320-325, March.
    15. Angelique G. Nindi & N. M. Odhiambo, 2015. "Poverty and Economic Growth in Swaziland: An Empirical Investigation," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 13(1 (Spring), pages 59-74.
    16. Odhiambo, Nicholas M., 2010. "Energy consumption, prices and economic growth in three SSA countries: A comparative study," Energy Policy, Elsevier, vol. 38(5), pages 2463-2469, May.
    17. Abosedra, Salah & Shahbaz, Muhammad & Nawaz, Kishwar, 2015. "Modeling Causality between Financial Deepening and Poverty Reduction in Egypt," MPRA Paper 67166, University Library of Munich, Germany, revised 09 Oct 2015.
    18. Liu, Yaobin, 2009. "Exploring the relationship between urbanization and energy consumption in China using ARDL (autoregressive distributed lag) and FDM (factor decomposition model)," Energy, Elsevier, vol. 34(11), pages 1846-1854.
    19. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    20. Madhu Sehrawat & A. Giri, 2016. "Financial development, poverty and rural-urban income inequality: evidence from South Asian countries," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 577-590, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:ijsepp:v:37:y:2010:i:1:p:41-53. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.