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The effect of Financial Development on Pro-Poor Growth: evidence from Sub-Saharan African Countries

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  • Sezard Timbi
  • Zedou Abdala

Abstract

This paper extends the empirical analysis establishing the significant and positive/negative influence of finance on growth/poverty by examining the contribution of financial development to pro-poor growth. We investigate the relationship between financial development and pro-poor growth in a panel of 29 countries from sub-Saharan Africa over the period 1994–2019. We focus on the vast majority income as the main indicator of pro-poor growth. We use the recent financial development index as a measure of financial development. Using Pooled Mean Group-ARDL estimation in a dynamic heterogeneous panel framework, we obtain the following results: (i) from linear analysis, there is a positive and significant effect of financial access, financial efficiency and the overall financial development index on pro-poor growth in the short run, while in the long run, only financial efficiency affects negatively and significantly pro-poor growth; (ii) results show that the nonlinear relation is not verified in the short run, while in the long run, there is an inverted U-shaped relationship between the financial development index, financial access and financial depth and pro-poor growth. This suggests that too much finance can be detrimental to pro-poor growth in SSA. Financial inclusion of the poor combined with governance is necessary to improve pro-poor growth.

Suggested Citation

  • Sezard Timbi & Zedou Abdala, 2024. "The effect of Financial Development on Pro-Poor Growth: evidence from Sub-Saharan African Countries," Applied Economics, Taylor & Francis Journals, vol. 56(8), pages 861-879, February.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:8:p:861-879
    DOI: 10.1080/00036846.2023.2174498
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