The effect of financial development on poverty and inequality in African countries

Abstract

Understanding the factors that are important in determining poverty and inequality is one of the steps in the fight to eradicate poverty in the world. This is particularly so for African countries because when compared to other regions, Africa has the largest concentration of people living below the poverty line. This article examines the effect of financial development as measured by private credit and broad money (M2) on poverty and inequality in African countries. The empirical results indicate that financial development has not had a significant effect on poverty and inequality in African countries. Macroeconomic variables such as low inflation and trade openness were found to be statistically significant, implying that they can help reduce the level of poverty and inequality. Our results confirm the deficiencies in African financial systems and highlight the fact that more efforts