Financial Inclusion, Governance and Economic Progress in Nigeria : What Happens to the Welfare of the Poor ?

Abstract

Poverty and income inequality still remain stubborn challenges in Nigeria. Financial inclusion and transparent democratic practice are often considered as critical elements that make growth inclusive and sustained. This study enquires empirically the impact of financial inclusion and governance characteristics on economic progress via three major channels: Investment in infrastructure, per capita GDP and income inequality. The data spans the period 1980-2014, the study leans on the Generalised Method of Moment (GMM) estimation technique for the analysis. Three striking results were reported: (i) financial inclusion and governance indices have statistical relevance in determining infrastructural investment in Nigeria; (ii) Governance indices and commercial bank deposit significantly increase per capita GDP; and (iii) financial inclusion has the tendency to bridge the gap between the rich and the poor and reduce the prevalence of poverty in the economy. The findings suggest that to reduce income inequality and increase per capita GDP, more measures must be taken to address financial exclusion of low-income groups from financial services. Also transparent democratic practice that will increase investment in infrastructure and enhance per capita GDP in order to alleviate poverty should be enthroned in Nigeria.