Financial Development and Poverty in Selected West African Countries: A Mediating Role of Institutional Quality

A. Aribatise and T.S. Akintunde

Volume 6 Issue 4 | Dec 2023

DOI: 10.31841/KJEMS.2023.151

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Abstract

This study examines the dynamic relationship between financial development (FD), institutional quality (INS), and poverty (POV) to determine whether financial development can either reduce or exacerbate poverty while including the mediating role of institutional quality in selected West African countries from 1986–2021. However, the study used the cross-sectional augmented-autoregressive distributed lags (CS-ARDL) technique and the second-generation unit root (CADF and CIPS) test for stationarity due to the cross-sectional dependence in the series. The results showed that FD has a positive (non-significant) impact on POV in the short run and a negative (statistically non-significant) in the long term. In contrast, INQ and POV have a negative (statistically non-significant) and inverse relationship. FD*INS has a negative coefficient in the short run and a positive in the long term; this implies that FD and INQ complement and substitute each other in the short and long term, respectively. The study shows that GDP per capita and government expenditure positively impact poverty in the short run, indicating the effectiveness of expansionary policy in reducing poverty. The study suggests improving governance and regulatory institutions to boost financial sector growth and enhance welfare for low-income people by providing easy access to finance.
Keywords: CS-ARDL; CIPS; CADF; financial development; institutional quality; poverty JEL classification: G20; I30