Is There Any Mediating Effect of Financial Deepening on the Relationship Between Economic Growth and Poverty Levels in the EAC Countries
International Journal of Finance and Banking Research
Volume 6, Issue 4, August 2020, Pages: 57-64
Received: May 27, 2020;
Accepted: Jun. 15, 2020;
Published: Jul. 23, 2020
Views 172 Downloads 72
James Mageto Nyamweya, Department of Finance and Accounting, Faculty of Business, University of Nairobi, Nairobi, Kenya
Duncan Elly Ochieng, Department of Finance and Accounting, Faculty of Business, University of Nairobi, Nairobi, Kenya
Herick Ondigo, Department of Finance and Accounting, Faculty of Business, University of Nairobi, Nairobi, Kenya
Peterson Obara Magutu, Department Management Science, Faculty of Business, University of Nairobi, Nairobi, Kenya
The study examined the mediating role of financial deepening on the relationship between economic growth and poverty levels in East African Community countries. The specific objectives included establishing the effect of economic growth on poverty levels in EAC countries and determining the meditating effect of financial deepening on the relationship between economic growth and poverty levels in EAC countries. The positivism philosophy was adopted throughout the study. The study adopted both comparative and descriptive research designs. The study population was the five countries of EAC countries which included Kenya, Rwanda, Uganda, Burundi, and Tanzania. Annual data for 30 years beginning 1989 to 2018 was gathered for the study purpose. Secondary data, which consisted of annual data, was utilized in the study. The study employed normality, heteroscedasticity, multicollinearity, serial correlation and unit root diagnostic tests. The data was analyzed using both descriptive and inferential statistics with the help of excel and STATA version 14. Feasible Generalised Least Squares (FGLS) panel data regression model was adopted to ascertain the causal effect link between various variables relating to economic growth, financial deepening, and poverty levels in EAC member countries. The tests of hypotheses were examined at 95% confidence level. The study results revealed that economic growth had a significant effect on poverty levels in East African Community countries. The study also revealed that financial deepening has a significant mediating effect on the link between economic growth and poverty levels in East African Community countries.
James Mageto Nyamweya,
Duncan Elly Ochieng,
Peterson Obara Magutu,
Is There Any Mediating Effect of Financial Deepening on the Relationship Between Economic Growth and Poverty Levels in the EAC Countries, International Journal of Finance and Banking Research.
Vol. 6, No. 4,
2020, pp. 57-64.
Obuya, M. O., & Olweny, T. (2017). Effect of Bank’s Lending Behaviour on Loan Losses of Listed Commercial Banks in Kenya. International Journal of Management and Commerce Innovations, 5 (1), 135-144.
Bitler, M., & Hoynes, H. (2015). Heterogeneity in the Impact of Economic Cycles and the Great Recession: Effects within and across the Income Distribution. American Economic Review, 105 (5), 154-60.
Sinha, R., Pearson, P., Kadekodi, G., & Gregory, M. (2017). Income distribution, growth and basic needs in India. Routledge.
Otieno, A. (2013). Financial deepening and profitability of commercial banks in Kenya.(Unpublished PhD Dissertation), Nairobi University, Nairobi, Kenya.
Todaro, M., & Smith, S. (2015). Economic Development, 12th Edition. Jakarta, Indonesia: Bukupedia.
Imran, K., & Khalil, S. (2012). Contribution of financial development in poverty reduction through industrial growth. International Journal of Asian Social Science, 2 (5), 567-576.
Ayres, R & Warr, B. (2010). The Economic Growth Engine: How Energy and Work Drive Material Prosperity. Gloucestershire, England: Edward Elgar Publishing.
Cole, S., Sampson, T., & Zia, B. (2011). Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets? The Journal of Finance, 66 (6), 1933-1967.
Shaw, E. (1973). Financial deepening in economic development. Oxford University Press, New York).
Rousseau, P., & Wachtel, P. (2017). What is happening to the impact of financial deepening on economic growth?. Economic inquiry, 49 (1), 276-288.
Ho, S., & Odhiambo, M. (2011). Finance and poverty reduction in China: an empirical investigation. International Business & Economics Research Journal, 10 (8), 103 114.
Fosu, A. (2017). Growth, inequality, and poverty reduction in developing countries: recent global evidence. Research in Economics, 71 (2), 306-336.
Baulch, B. (2011). Why Poverty Persists: Poverty Dynamics in Asia and Africa. Gloucestershire, England: Edward Elgar Publishing.
Atkinson, A. B. (2019). Measuring Poverty around the World. Princeton, NJ: Princeton University Press.
Chetty, R., Grusky, D., Hell, M., Hendren, N., Manduca, R., & Narang, J. (2017). The fading American dream: Trends in absolute income mobility since 1940. Science, 356 (6336), 398-406.
Perez-Moreno, S. and Weinhold, D. 2012. Dynamic medium term granger causality between growth and poverty (Unpublished PhD Dissertation), Universidad de Málaga, Spain.
Waiyaki, N. (2013). Financial development, economic growth and poverty in Kenya. University of Nairobi, Unpublished PhD Dissertation.
Kakwani, N., & Son, H.(2016). Global poverty estimates based on 2011 purchasing power parity: where should the new poverty line be drawn?. The Journal of Economic Inequality, 14 (2), 173-184.
Keho, Y. (2017). The impact of trade openness on economic growth: The case of Cote d’Ivoire. Cogent Economics & Finance, 5 (1), 1-14.
Williams, H., Adegoke, A., & Dare, A. (2017). Role of financial inclusion in economic growth and poverty reduction in a developing economy. Internal Journal of Research in Economics and Social Sciences, 7 (5), 265-271.
Singh, R., & Huang, Y. (2015). Financial deepening, property rights, and poverty: Evidence from Sub-Saharan Africa. Journal of Banking and Financial Economics, 1 (3), 130-151.
Gries, T., Kraft, M., & Meierrieks, D. (2009). Linkages between financial deepening, trade openness, and economic development: causality evidence from Sub-Saharan Africa. World Development, 37 (12), 1849-1860.
Nzotta, S., & Okereke, E. (2009). Financial deepening and economic development of Nigeria: An Empirical Investigation.
Keynes, J. (1936). The General Theory of Employment, Interest and Money. London: MacMillan.
Bradshaw, J., Williams, J., Levitas, R., Pantazis, C., Patsios, D., Townsend, P.,... & Middleton, S. (2000, August). The relationship between poverty and social exclusion in Britain. In 26thPaper prepared for the 26th General Conference of The International Association for Research in Income and Wealth Cracow, Poland, 27 August to 2 September 2000.
Schlesinger, A. (1959). The Age of Roosevelt: The Coming of the New Deal. Cambridge: The Riverside Press.
Akerlof, G., (1970). The market for ‘Lemons’: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84 (3), 488-500.
Leland, H., & Pyle, D. (1977). Informational asymmetries, financial structure, and financial intermediation. The Journal of Finance, 32 (2), 371-387.
Odhiambo, N. M. (2010). Financial deepening and poverty reduction in Zambia: an empirical investigation. International Journal of Social Economics. 43 (3), 205-219.
Fowowe, B., & Abidoye, B. (2013). The effect of financial development on poverty and inequality in African countries. The Manchester School, 81 (4), 562-585.
Uddin, G. S., Shahbaz, M., Arouri, M., & Teulon, F. (2014). Financial development and poverty reduction nexus: cointegration and causality analysis in Bangladesh. Economic Modelling, 36, 405-412.
Abosedra, S., Shahbaz, M., & Nawaz, K. (2016). Modeling causality between financial deepening and poverty reduction in Egypt. Social Indicators Research, 126 (3), 955-969.
Naceur, S., & Zhang, R. (2016). Financial development, inequality and poverty: some international evidence. International Review of Economics & Finance, 61 (5), 1-16.