Financial Openness and Poverty Level: The Empirical Investigation in Nigeria

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue II, February 2021 | ISSN 2454–6186

Financial Openness and Poverty Level: The Empirical Investigation in Nigeria

Oluwayemisi Kadijat ADELEKE & Omowunmi Monisola AJEIGBE
Department of Economics, Redeemer’s University, Ede, Osun State, Nigeria

Abstract: This study examined the effect of financial openness on poverty level in Nigeria from 1981 to 2018, using Autoregressive Distributed Lag (ARDL) technique. The study found that the lagged value of poverty has a positive and significant relationship with itself. This buttresses the point that poverty in the previous period’s filters directly into the present period. Again, the study found that financial deepening has an inverse and significant effect on poverty, while financial openness was found to have a positive and significant impact on poverty. Finally, the lagged value of growth rate, investment, inflation and institutional quality has an inverse and significant effect on poverty.

JEL CLASSIFICATION: F65, I31, I38

I. INTRODUCTION

The Nigerian financial system has gone through various reforms to improve financial sector efficiency, increase its economic growth, which will in-turn affect development issues positively. However, before the structural adjustment programme (SAP) was introduced in 1986, the Nigerian financial sector experienced rigidity in exchange rate and interest rate, sectoral allocation of bank credits and maximum level of bank credits available to the private sector. These attributes led to reduced direct investment in the financial system, inadequate funds, overvaluation of currency and a bearish economy. Thus, the period between 1959 and 1986 was seen as the period of banking regulation in Nigeria and financial repression.
However, after the introduction of structural adjustment programme (SAP) in 1986, the Nigerian financial system witnessed several reforms and financial liberalization measures were adopted, such as, financial openness, liberalised interest rate and exchange rate (Ogwuma, 1993; Ojo, 1993). Financial liberalization operates based on a market system and it encourages competition and also attracts investors both locally and internationally. The belief is that a financially liberalized sector will allow for mobilization of necessary funds for development and channeling of funds into the most efficient use in accordance with the McKinnon and Shaw (1973) argument. According to them, they criticized government policies which restricted and controlled financial markets and believed that it brings about low growth rates, which leads to increase in poverty rates.

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