FINANCIAL DEVELOPMENT, INSTITUTIONS AND POVERTY REDUCTION : AN EMPIRICAL EVIDENCE FROM SUB-SAHARAN AFRICA

This paper examines the relationship between financial development and poverty fora sample of SSA countries while taking into account an interaction effect between thefinancial sector and the institutional framework, which is thought to be causing someomitted variable bias in previous studies. The study covers the period 2000–2019.These relationships are investigated using fixed effects. The results show thatfinancial development had a statistically significant and positive impact on povertyreduction. Also, the estimates reveal that institutional quality has a significant andpositive impact on poverty reduction. However, it was discovered that whereinstitutions perform better, the pro-poor impact of financial development is alsobetter. These findings support the theory that finance, and institutions have acomplementary effect. The study recommends, amongst others, that a judiciousallocation of resources between financial development and strengthening the qualityof institutions will be critical to reducing poverty and boosting economic growth inthe region.