Relative Impact of Financial Sub-Sectors on Poverty Level: A Disaggregated Effect of Financial Sector Development in Nigeria

Abstract

The study examined the relative impact of financial sub-sectors on poverty level in Nigeria within an error correction framework by employing annual time series data spanning the period 1981 to 2014. Unlike previous studies, an index was created through Principal Component Analysis (PCA) as a proxy for poverty reduction from seven frequently used proxies in the literature. The study found an evidence of long run equilibrium relationship among banking sector development, stock market development, central bank development and poverty reduction in Nigeria. The study also found that stock market development and the central bank development contribute significantly to reducing poverty incidence in Nigeria though very minimal. However, banking sector development has a significant negative effect on poverty reduction in the long run. Hence, the study concluded that credits, loans and other advances provided by banking sector were not channeled to the appropriate private sectors to ensure
adequate funding of small and medium enterprises (SMEs) from where poor people could benefit.