Financial Inclusion, Institutional Quality, and Poverty Reduction in Nigeria.
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Date
2024-12
Journal Title
Journal ISSN
Volume Title
Publisher
Kwasu
Abstract
Poverty alleviation remains a global challenge and at the fore front of the economic development of
developing economies like Nigeria. Although it has been established in literature that financial
inclusion is crucial for poverty reduction, few studies have examined the role of institutional quality
as an important determinant of poverty reduction. Hence, this study examines institutional quality
and financial inclusion on poverty reduction in Nigeria. The paper is anchored on the Capability
Approach and adopts the Human Development Index (HDI) as a proxy for poverty reduction as it
measures basic human capabilities. With time series data from 1987 to 2022 the VECM is employed
as the estimation technique given the established long-run relationship obtained from the ARDL
bounds test cointegration technique. Findings reveal that in the short run, financial inclusion and
institutional quality are statistically significant and positive for poverty reduction. In the long run,
however, these relationships become insignificant. This study, therefore, elucidates on the opposing
directions of financial inclusion and poverty alleviation in the country with institutional quality also
shown to be vital. Consequently, financial inclusion and institutional quality are found to be
necessary, but insufficient conditions for poverty reduction. Hence, while financial inclusion and
good institutions are important in the short run, long-term poverty alleviation strategies must be
comprehensive and multi-sectoral in approach to complement, consolidate, and sustain the poverty
reduction potentials of financial inclusion and high-quality institutions.