Financial Deepening and Poverty Reduction in Nigeria

  • Afamefuna Obunike-Ezeuli Department of Finance and Banking, University of Port Harcourt, Port Harcourt, Nigeria
  • Ebere P. Ifionu Department of Finance and Banking, University of Port Harcourt, Port Harcourt, Nigeria
  • Godfrey O. Omojefe Department of Finance and Banking, University of Port Harcourt, Port Harcourt, Nigeria
Keywords: financial deepening, poverty reduction, multidimensional poverty index, financial development, finance ratio


This study investigates the relationship between financial deepening and poverty reduction in Nigeria from 1994 to 2022. Using an Autoregressive Distributed Lag (ARDL) model Financial Inter-Relation Ratio (DFIR) and Finance Ratio (FRT) demonstrate negative relationships with MPI, suggesting that enhanced interconnections and relative growth in the financial sector can lead to poverty reduction. The ARDL long-run result shows that; The Ratio of Money to National Income (MNI) shows a positive relationship, signalling potential adverse effects on poverty, warranting careful policy considerations. The small positive coefficient of the Financial Accessibility Ratio (FAC) emphasizes quality over quantity in financial access. Interest Margin (NIM) was found to have a positive and significant impact, stressing the importance of efficiency and competition within the financial sector. Based on the findings, the study recommended that financial institutions and policymakers should develop and implement long-term strategies focusing on financial deepening to ensure sustainable poverty reduction. Recognize financial deepening as a central policy pillar in national development planning.


F. S. Mishkin, The Economics of Money, Banking, and Financial Markets. Boston: Pearson, 2009.

D. I. Okoduwa, “Effect of Financial Development and Financial Inclusion on Poverty Reduction in Nigeria,” Acta Univ. Danub. Œcon., vol. 19, no. 3, pp. 183–199, 2023.

R. G. King and R. Levine, “Finance, Entrepreneurship, and Growth: Theory and Evidence,” J. Monet. Econ., vol. 32, no. 3, pp. 513–542, 1993.

R. Levine, “Finance and growth: Theory and evidence,” Handb. Econ. Growth, vol. 1A, pp. 865–934, 2005.

L. U. Chenghui and A. Dilanchiev, “The nexus of financial deepening and poverty: the case of Black Sea region economies,” Singap. Econ. Rev., pp. 1–23, 2022.

Central Bank of Nigeria (CBN), Annual Report on Financial Deepening Measures. Abuja, Nigeria: Central Bank of Nigeria, 2020.

World Bank, Poverty and Shared Prosperity 2018: Piecing Together the Poverty Puzzle. Washington, DC: World Bank, 2019.

A. J. Asaleye, L. A. Isoha, F. Asamu, H. Inegbedion, O. C. Arisukwu, and O. Popoola, “Financial development, manufacturing sector, and sustainability: Evidence from Nigeria,” J. Soc. Sci. Res., vol. 4, no. 12, pp. 539–546, 2018.

T. Beck, A. Demirgüç-Kunt, and R. Levine, “Finance, Inequality, and Poverty: Cross-Country Evidence,” J. Econ. Growth, vol. 12, no. 1, pp. 27–49, 2004.

L. U. O. Hua and Z. H. O. U. Wenliang, “Effect and Mechanism of Inclusive Finance on Poverty Reduction and Income Increase under the Background of Targeted Poverty Alleviation: An Empirical Study of 12 Cities in the Eastern, Western and Northern Guangdong,” 云南农业大学学报 社会科学, vol. 16, no. 3, pp. 36–42, 2022.

L. S. Sanusi, “Financial Inclusion: Issues and Challenges,” Keynote Address 2010 Financ. Incl. Conf. Lagos Niger., 2010.

E. S. Atalo, “An economic assessment of the impact of finance on Nigeria’s agricultural sector,” J. Pan Afr. Dev. Stud. Pad West Afr. J. Contemp. Res., vol. 4, no. 7, pp. 36–59, 2015.

J. O. Aiyedogbon and S. O. Anyanwu, “Macroeconomic determinants of industrial development in Nigeria,” Nile J. Bus. Econ., vol. 1, no. 1, pp. 37–46, 2016.

Y. Shi, S. Paul, and S. R. Paramati, “The impact of financial deepening on income inequality: Empirical evidence from Australia,” Int. J. Finance Econ., vol. 27, no. 3, pp. 3564–3579, 2022.

J. A. Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Harvard University Press, 1934.

R. W. Goldsmith, Financial structure and development. New Haven, Yale University Press, 1969.

M. Friedman and A. J. Schwartz, A Monetary History of the United States, 1867-1960. Princeton University Press, 1963.

M. Sarma, “Index of Financial Inclusion,” Indian Counc. Res. Int. Econ. Relat. Work. Pap. No 215, 2008.

A. Demirgüç-Kunt and H. Huizinga, “Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence,” World Bank Econ. Rev., vol. 13, no. 2, pp. 379–408, 1999.

A. Aminu, I. A. Raifu, and B. D. Oloyede, “Financial development and manufacturing output growth nexus in Nigeria: The role of institutional quality,” DBN J. Econ. Sustain. Growth, vol. 1, no. 2, pp. 1–43, 2019.

B. Fowowe, “Access to finance and firm performance: Evidence from African countries,” Rev. Dev. Finance, vol. 8, no. 1, pp. 6–17, 2017.

L. Bhole, “Venture Capital Funds, Structure Growth and Innovations Financial Institutions and Markets,” 2004.

World Bank, World Development Indicators 2022. Washington, D.C.: World Bank Publications, 2022.

R. I. McKinnon, Money and capital in economic development. Washington: Brookings Institute. Washington, DC, 1973.

E. Shaw, Financial Deepening in Economic Development. Oxford University Press, 1973.

J. Schumpeter, Theory of economic development. Harvard University Press, Cambridge, MA, 1911.

H. Patrick, “Financial development and economic growth in underdeveloped countries,” Econ. Dev. Cult. Change, vol. 14, no. 2, pp. 174–189, 1966.

J. Robinson, “The generalization of the general theory,” Rate Interest Essays, pp. 69–142, 1952.

R. Lucas, “On the Mechanics of Economic Development,” J. Monet. Econ., vol. 22, no. 1, pp. 30–42, 1988.

J. G. Gurley and E. S. Shaw, Money in a Theory of Finance. Brookings Institution, 1960.

P. M. Romer, “Increasing Returns and Long-Run Growth,” J. Polit. Econ., vol. 94, no. 5, pp. 1002–1037, 1986.

A. Demirgüç-Kunt and L. Klapper, “Measuring Financial Inclusion: The Global Findex Database,” World Bank Policy Research Working Paper, 6025, 2012.

A. Banerjee and E. Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. PublicAffairs, 2011.

C. Bayer and C. Hanck, “Combining non‐cointegration tests,” J. Time Ser. Anal., vol. 34, no. 1, pp. 83–95, Jan. 2013, doi: 10.1111/j.1467-9892.2012.00814.x.

R. Zhang and S. B. Naceur, “Financial development, inequality, and poverty: Some international evidence,” Int. Rev. Econ. Finance, vol. 61, pp. 1–16, 2019.

F. Allen, A. Demirguc-Kunt, L. Klapper, and M. S. M. Peria, “The foundations of financial inclusion: Understanding ownership and use of formal accounts,” J. Financ. Intermediation, vol. 27, pp. 1–30, 2016.

A. E. Akinlo and T. Egbetunde, “Financial development and economic growth: The experience of 10 sub-Saharan African countries revisited,” Rev. Finance Bank., vol. 2, no. 1, 2010.

L. A. Odhiambo, “The effect of changes in interest rates on the demand for credit and loan repayments by small and medium enterprises in Kenya,” Univ. Nairobi, 2013.

S. H. Law and N. Singh, “Does too much finance harm economic growth?,” J. Bank. Finance, vol. 41, pp. 36–44, 2014.

S. G. Jeanneney and K. Kpodar, “Financial development and poverty reduction: Can there be a benefit without a cost?,” J. Dev. Stud., vol. 47, no. 1, pp. 143–163, 2011.

T. Beck, L. Senbet, and W. Simbanegavi, “Financial inclusion and innovation in Africa: An overview,” J. Afr. Econ., vol. 24, no. suppl_1, pp. i3–i11, 2015.

O. A. Bernard and D. Adenuga, “Impact of economic reforms on the performance of the manufacturing sector in Nigeria,” J. Appl. Econ. Sci., vol. 4, no. 50, pp. 1194–209, 2016.

E. P. Mesagan and A. C. Ezeji, “The role of social and economic infrastructure in manufacturing sector performance in Nigeria,” 2016.

A. Szirmai, Socio-economic development, Second edition. Cambridge: Cambridge University Press, 2015.

A. F. Ademola and O. T. Marshal, “Financial deepening and the performance of manufacturing firms in Nigeria,” Can. Soc. Sci., vol. 14, no. 6, pp. 87–96, 2018.

C. M. Ojong, O. Anthony, and O. F. Arikpo, “Financial deepening and manufacturing sector growth in Nigeria,” Int. J. Dev. Res., vol. 7, no. 1, pp. 48–59, 2017.

N. Okuma, C. Nwoko, U. Festus, and A. Sebastine, “Causality between financial inclusion and agricultural sector output in Nigeria,” Int. J. Asian Soc. Sci., vol. 9, no. 4, pp. 304–317, 2019.

M. Zakaria, W. Jun, and M. F. Khan, “Impact of financial development on agricultural productivity in South Asia,” Agric. Econ., vol. 65, no. 5, pp. 232–239, 2019.

M. Rizwan-ul-Hassan, “The Impact of financial sector development on agricultural growth: empirical evidence from Pakistan,” Mark. Forces, vol. 12, no. 2, pp. 10–17, 2017.

E. Olaniyi, “Back to the land: The impact of financial development on agriculture in Nigeria,” Iran. Econ. Rev., vol. 21, no. 4, pp. 885–903, 2017.

A.-S. Yakubu, A. Q. Aboagye, Lord Mensah, and G. A. Bokpin, “Effect of financial development on international trade in Africa: Does measure of finance matter?,” J. Int. Trade Econ. Dev., vol. 27, no. 8, pp. 917–936, 2018.

Y. A. Sare, A. Q. Aboagye, and Lord Mensah, “Financial development, sectoral effects, and international trade in Africa: An application of pooled mean group (PMG) estimation approach,” Int. J. Finance Econ., vol. 24, no. 1, pp. 328–347, 2019.

A. Levin, C.-F. Lin, and C.-S. J. Chu, “Unit root tests in panel data: asymptotic and finite-sample properties,” J. Econom., vol. 108, no. 1, pp. 1–24, 2002.

K. S. Im, M. H. Pesaran, and Y. Shin, “Testing for unit roots in heterogeneous panels,” J. Econom., vol. 115, no. 1, pp. 53–74, 2003.

M. H. Pesaran, Y. Shin, and R. J. Smith, “Bounds testing approaches to the analysis of level relationships,” J. Appl. Econom., vol. 16, no. 3, pp. 289–326, 2001.

E. Nkoro and A. K. Uko, “Autoregressive distributed lag (ARDL) cointegration technique: application and interpretation,” J. Stat. Econom. Methods, vol. 5, no. 4, pp. 63–91, 2016.

D. V. Raju, “Financial inclusion financial literacy for farmers In India,” Our Herit., vol. 68, no. 1, pp. 6565–6572, 2020.

P. Z. Medugu, I. Musa, and E. P. Abalis, “Commercial banks’ credit and agricultural output in Nigeria: 1980 -2018,” Int. J. Res. Innov. Soc. Sci., vol. 3, no. 5, pp. 244–251, 2019.

W. B. Report, Global Financial Development Report 2018. The World Bank, 2018.

E. Orlic, I. Hashi, and M. Hisarciklilar, “Cross-sectoral FDI spillovers and their impact on manufacturing productivity,” Int. Bus. Rev., vol. 27, no. 4, pp. 777–796, 2018.

E. Mesagan, N. Olunkwa, and I. Yusuf, “Financial development and manufacturing performance: The Nigerian case,” Stud. Bus. Econ., vol. 13, no. 1, pp. 97–111, 2018.

A. I. Lawal, A. J. Asaleye, J. Ise-Olorunkanmi, and O. R. Popoola, “Economic growth, agricultural output and tourism development in Nigeria, An application of the ARDL bound testing approach,” J. Environ. Manag. Tour., vol. 4, no. 28, pp. 786–794, 2018.

H. E. Inegbedion, “Factors that influence customers’ attitude toward electronic banking in Nigeria,” J. Internet Commer., vol. 17, no. 4, pp. 325–338, 2018.

B. Ibrahima and P. Alagidedebe, “Banking Reforms in Nigeria: Performance Analysis and Policy Implications,” Int. J. Econ. Finance, vol. 10, no. 2, pp. 76–89, 2018.

M. Ibrahim and P. Alagidede, “Effect of financial development on economic growth in sub-Saharan Africa,” J. Policy Model., vol. 40, no. 6, pp. 1104–1125, 2018.

A. Demirgüç-Kunt, L. Klapper, D. Singer, and P. Van Oudheusden, “The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution,” World Bank Group, 2018.

M. Shahbaz, T. H. Van Hoang, M. K. Mahalik, and D. Roubaud, “Energy consumption, financial development and economic growth in India: New evidence from nonlinear and asymmetric analysis,” Energy Econ., vol. 63, no. 1, pp. 199–212, 2017.

B. G. Osisanwo, “Financial Development and Economic Growth Nexus in Nigeria: Further Evidence from Long-run Estimates,” Acta Univ. Danub. Œcon., vol. 13, no. 3, pp. 1–19, 2017.

O. Oliynyk-Dunn, “Financial system and agricultural growth in Ukraine,” Organizacija, vol. 50, no. 3, pp. 244–253, 2017.

A. Freytag and S. Fricke, “Sectoral linkage of financial services as channels of economic development–an–input-output analysis of the Nigerian and Kenyan economics,” Rev. Dev. Finance, vol. 7, no. 2, pp. 36–44, 2017.

United Nations Industrial Development Organization-UNIDO, Industrial development report. The role of technology and innovation in inclusive and sustainable industrial development. UNIDO, Vienna, 2016.

A. J. Igyo, J. Simon, and E. M. Jane, “Financial intermediation and agricultural output in Nigeria: An impact analysis of deposit money banks’ credit,” Int. J. Agric. Econ., vol. 1, no. 1, pp. 16–22, 2016.

IMF, World economic outlook: The global demographic transition. World Economic and Financial Surveys, Washington, September, 2014.

H. Herwartz and Y. M. Walle, “Determinants of the link between financial and economic development: Evidence from a functional coefficient model,” Econ. Model., vol. 37, no. 1, pp. 417–427, 2014.

A. Dhrifi, “Financial development and agriculture productivity: Evidence from African Countries,” Int. Cent. Bus. Res., vol. 3, no. 1, pp. 1–9, 2014.

B. O. Ohwofasa and J. O. Aiyedogbon, “Financial deepening and economic growth in Nigeria: An empirical investigation,” J. Econ. Dev. Stud., vol. 1, no. 1, pp. 22–42, 2013.

B. Fowowe, “Financial liberalization in Sub-Saharan Africa: what do we know?,” J. Econ. Surv., vol. 27, no. 1, pp. 1–37, 2013.

C. M. Essa, S. Franklin, and O. Gideon, “Factor productivity in smallholder pigeonpea production systems: Empirical evidence from Northern Tanzania,” J. Agric. Econ. Dev., vol. 1, no. 6, pp. 138–144, 2013.

A. J. Akpaeti, “Does financial sector reforms affect agricultural investments in Nigeria? A Cointegration and VAR Approach,” Int. J. Food Agric. Econ., vol. 1, no. 11, pp. 13–28, 2013.

F. G. Sackey and E. M. Nkrumah, “Financial sector deepening and economic growth in Ghana,” J. Econ. Sustain. Dev., vol. 3, no. 8, pp. 122–139, 2012.

C. L. Nguena, “Price stability objectives and economic growth: A panel data econometrics empirical investigation for selected CEMAC Countries,” MPRA Pap. No 49412, 2012.

IMF, Sub-Saharan Africa: Maintaining growth in an uncertain world. Regional Economic Outlook, Washington, 2012.

T. Beck, “The role of finance in economic development–benefits, risks, and politics,” in Oxford Handbook of Capitalism, 2012, pp. 161–203.

D. Susanto, C. P. Rosson III, and R. F. Costa, “Financial development and international trade: Regional and sectoral analysis,” no. 321-2016–10881, 2011.

M. K. Hassan, B. Sanchez, and J. Yu, “Financial development and economic growth: New evidence from panel data,” Q. Rev. Econ. Finance, vol. 51, no. 1, pp. 88–104, 2011.

M. Goswami and S. Sharma, “The development of local debt markets in Asia,” IMF Working Paper(No.11/132), 2011.

M. S. Ogunmuyiwa and A. F. Ekone, “Money supply-economic growth nexus in Nigeria,” J. Soc. Sci., vol. 22, no. 3, pp. 199–204, 2010.

S. O. Odeniran and E. A. Udeaja, “Financial Inclusion and Economic Development in Nigeria,” Cent. Bank Niger. Econ. Financ. Rev., vol. 48, no. 3, pp. 39–52, 2010.

World Bank, World development report: Agriculture for development. The World Bank Group, 2008.

M. A. Khan, “Financial development and economic growth in Pakistan: Evidence based on Autoregressive Distributed Lag (ARDL) approach,” South Asia Econ. J., vol. 9, no. 2, pp. 375–391, 2008.

S. Abu-Bader and A. S. Abu-Qarn, “Financial development and economic growth: The Egyptian experience,” J. Policy Model., vol. 30, no. 5, pp. 887–898, 2008.

F. Rioja and N. Valev, “Finance and the sources of growth at various stages of economic development,” Econ. Inq., vol. 42, no. 1, pp. 27–40, 2004.

R. Levine, N. Loayza, and T. Beck, “Financial intermediation and growth: causality and causes,” J. Monet. Econ., vol. 46, no. 1, pp. 31–77, 2000.

M. M. S. Khan and M. A. S. Semlali, Financial development and economic growth: an overview. New Haven, Yale University Press, 2000.

T. Beck, R. Levine, and N. Loayza, “Finance and the sources of growth,” J. Financ. Econ., vol. 58, no. 1–2, pp. 261–300, 2000.

R. G. Rajan and L. Zingales, “Financial dependence and growth,” Am. Econ. Rev., vol. 88, no. 3, pp. 559–586, 1998.

J. C. Berthélemy and A. Varoudakis, “Développement financier, réformes financières et croissance: une approche en données de panel,” Rev. Économique, vol. 7, no. 3, pp. 195–206, 1998.

R. Levine, “Financial development and economic growth: views and agenda,” J. Econ. Lit., vol. 35, no. 2, pp. 688–726, 1997.

M. Pagano and T. Jappelli, “Information sharing in credit markets,” J. Finance, vol. 48, no. 5, pp. 1693–1718, 1993.

V. R. Bencivenga and B. Smith, “Financial intermediation and endogenous growth,” Rev. Econ. Stud., vol. 58, no. 2, pp. 195–209, 1991.

P. Arestis and P. O. Demetriades, “Financial development and economic growth: Assessing the evidence,” Econ. J., vol. 107, no. 442, pp. 783–799, 1991.

J. Greenwood and B. Jovanovic, “Financial development, growth, & the distribution of income,” J. Polit. Econ., vol. 98, no. 5, pp. 1076–1107, 1990.

R. I. McKinnon, Financial liberalization and economic development: a reassessment of interest-rate policies in Asia and Latin America. Ics Pr, 1988.

M. Fry, “Money and capital or financial deepening in economic development?,” J. Money Credit Bank., vol. 10, no. 4, pp. 64–74, 1988.

A. Gerschenkron, Economic backwardness in historical perspective: a book of essays. Belknap Press of Harvard University Press, 1962.

W. A. Lewis, Theory of economic growth. George Allen & Unwin Ltd. London-1955, 1956.

S. Kuznets, “Economic growth and income inequality,” Am. Econ. Rev., vol. 45, no. 1, pp. 1–28, 1955.

W. Bagehot, Lombard Street. Homewood, Richard Irwin, 1873.

How to Cite
Obunike-Ezeuli, A., Ifionu, E. P., & Omojefe, G. O. (2024). Financial Deepening and Poverty Reduction in Nigeria. Central Asian Journal of Innovations on Tourism Management and Finance, 5(1), 160-175.