FINANCIAL DEVELOPMENT AS CATALYST FOR POVERTY REDUCTION AMONG SUB-SAHARAN AFRICAN (SSA) COUNTRIES

Abstract

This study examines the effects of financial sector development on poverty in developing countries chosen sub-Saharan Africa (SSA) as an example. The paper attempts to answer a critical question, is financial sector development a catalyst for poverty reduction in SSA? The study employed dynamic panel generalized method of moment (GMM) estimation to analyse the data. The findings of the study suggest that financial development and trade openness have strong and positive effect on poverty reduction in SSA. While high population growth rate has negative effect on poverty reduction in the region. This implies that the extent of financial development and degree of trade openness are very crucial in determining the rate of poverty, while high population growth rate leads to decrease in per capita income and thus intensify the rate of poverty. This study therefore recommends for appropriate financial reform fussing on effective financial intermediation and inclusion for poverty reduction in SSA countries. This study provides an insight on the financial sector effects on poverty by incorporating macroeconomic variables such as trade openness, population and inflation to account for policy and macroeconomic shocks.