Modelling asymmetric structure in the finance-poverty nexus: empirical insights from an emerging market economy

Abstract

Deviating from previous literature, this study incorporates an asymmetric structure into how poverty reduction responds to changes in financial development. This objective is captured within the context of a nonlinear autoregressive distributed lag estimator using data from Nigeria for the periods 1980–2018. The outcomes of the findings attest to asymmetric structure in the finance-poverty nexus in the long run while the asymmetric effect is found nonexistent in the short run. It is found that expansionary and contractionary policies of the financial sector are catalysts to spur poverty reduction in Nigeria in the long run while only an expansionary policy provides a strong stimulus to accelerate poverty reduction in the short run. This study divulges the need to account for asymmetric structure and nonlinearity in the finance-poverty nexus which previous studies neglected. This study concludes that financial sector development is a panacea to propel poverty reduction in Nigeria. Based on the outcomes of the findings, it is recommended that the financial sector in Nigeria should engage in a persistent increase in the channelization of financial resources to productive and entrepreneurial activities that can spur employment opportunities for the poor. Also, stakeholders should prune the credit facilities to unproductive ventures that do not have poverty-reducing effects in the country.