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Financial Sector Development and Poverty Reduction in Nigeria: A Vector Autoregression Analysis (1980-2010)

Author

Listed:
  • Risikat Oladoyin S. Dauda

    (Department of Economics, University of Lagos, Akoka, Lagos)

  • Kayode, O. Makinde

    (Department of Economics University of Lagos, Akoka, Lagos)

Abstract

This study examines the nexus between financial sector development and poverty reduction in Nigeria using Vector autoregressive (VAR) model. The choice of the study has been motivated by the alleged failure of the financial sector development in bringing about a reduction in the worsening trend in poverty incidence in Nigeria. The evidences from both the VAR and impulse response show that the indirect effect of economic growth exerts the strongest influence on poverty reduction in the short run but could be detrimental to the poor in the long run due to the adverse effect of income inequality. Furthermore, the relationship between poverty and the financial deepening proxied by broad money supply (M2) is negative and significant. Hence, the McKinnon conduit effect is the likely main transmission channel through which the poor benefit from the financial sector development in the long run. The study, however, concludes that credits to private sector, contrary to the general belief, have failed to cause a reduction in the incidence of poverty in Nigeria.

Suggested Citation

  • Risikat Oladoyin S. Dauda & Kayode, O. Makinde, 2014. "Financial Sector Development and Poverty Reduction in Nigeria: A Vector Autoregression Analysis (1980-2010)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(8), pages 1040-1061, August.
  • Handle: RePEc:asi:aeafrj:2014:p:1040-1061
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    References listed on IDEAS

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    Cited by:

    1. Yaya Keho, 2016. "Revisiting the Financial Development and Poverty Reduction Nexus for Sub-Saharan African Countries: Evidence from Causality Tests in the Time and Frequency Domains," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1906-1910.

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