Financial Development and Poverty Reduction in Sub-Saharan Africa

Abstract

This study examines the effects of financial development on poverty reduction in 36 Sub-Saharan African countries over the period between 2000 and 2021. The study employs the Quantile Method of Moments with fixed effects (MMQR) due to its ability to address endogeneity and outliers among economic variables.  Our estimated results reveal the following pattern. First, when the level of poverty rises above the median (50th quantile), the relationship between financial development and poverty remains statistically insignificant.  Second, when the level of poverty falls below the median (50th quantile), the relationship between financial development and poverty bears a negative and statistically significant coefficient. Our results also show that an increase in the level of education reduces poverty, but a higher level of income inequality increases poverty. The policy implication is that financial development initiatives are more pronounced in reducing poverty if such initiatives are simultaneously accompanied by educational and income redistribution policies.