FINANCIAL INCLUSION AND INCLUSIVE GROWTH IN NIGERIA: THE ROLE OF INSTITUTIONAL QUALITY
DOI:
https://doi.org/10.18623/rvd.v23.n4.3169Keywords:
Inclusive Growth, Institutional Quality, Financial Inclusion, ARDL, Quantile GMMAbstract
Over the last decade, Nigeria has been persistently described as the world’s capital of poverty, with approximately half of its population reported to live below the poverty line according to the World Bank. This is a striking paradox given the nation’s status as the largest economy in Africa and one of the fastest-growing economies globally in recent years. The overwhelming evidence suggests that Nigeria’s economic growth has not been inclusive. This study therefore examined the moderating role of institutional quality in the relationship between financial inclusion and inclusive growth, employing time series data from 1990 to 2023. Estimated results from both the Autoregressive Distributed Lag (ARDL) model and the Quantile Generalized Method of Moments (QGMM)—used for robust inference—reveal that financial inclusion has a statistically significant positive impact on both aggregated inclusive growth (measured via principal component analysis) and disaggregated inclusive growth (including standards of living, life expectancy at birth, and GDP growth). The study also finds that institutional quality exerts a direct cautionary effect on inclusive growth and distorts the positive impact of financial inclusion. While this appears counterintuitive, the study attributes these cautionary effects to short-term disruptions that produce long-term ripple effects. It is recommended that institutional reforms be tailored to the peculiarities of the Nigerian economy and closely monitored to mitigate potential short-run disruptions that could undermine the long-term benefits of strong institutional quality.
References
Abor, J. Y., Amidu, M., & Issahaku, H. (2018). Mobile Telephony, Financial Inclusion and Inclusive Growth. Journal of African Business, 19(3), 430–453. https://doi.org/10.1080/15228916.2017.1419332
Adeleye, B.N., Aderounmu, B., Owolabi, O., Okafor, V., & Ohonba, A. (2022). Examining the influence of ICT innovation in the finance-tourism nexus in Asia, Transnational Corporation Review, https://doi.org/10.1080/19186444.2022.2107331
Aderounmu, B., Azuh, D., Onanuga, O., Ogundipe, O., Bowale, E., & Azuh, A. (2021). Poverty drivers and Nigeria’s development: Implications for policy intervention, Cogent Arts and Humanities, 8:1, 1927495, DOI: 10.1080/23311983.2021.1927495, https://doi.org/10.1080/23311983.2021.1927495
Afolabi, J.O. (2020). Impact of Financial Inclusion on inclusive Growth: An Empirical Study of Nigeria. Asian Journal of Economics and Empirical Research, 7(1), 8 -14
Akinlo, T., & Aderounmu, B. (2023). Capital flight, institutional quality and real sector in sub-Saharan African countries. Journal of Money Laundering Control, https://www.emerald.com/insight/1368-5201.htm
Beck, T, Aslı Demirguc¸ K, and Maria S.M.P. (2009). “Banking Services for Everyone? Barriers to Bank Access and Use around the World. World Bank Economic Review 22 (3):397 – 430
Bernard, S. & Edward, N-A. (2022) Financial inclusion and inclusive growth in sub-Saharan Africa, Cogent Economics & Finance, 10:1, 2058734, DOI: 10.1080/23322039.2022.2058734
Bolarinwa, A. & Collins, A. (2021). Economic growth and deforestation in African countries: Is the environmental Kuznets curve hypothesis applicable? Forest Policy and Economics. 129.
Bongomin, G. O. C., Munene, J. C., Ntayi Mpeera, J., & Malinga Akol, C. (2017). Financial inclusion in rural Uganda: The role of social capital and generational values. Cogent Business & Management, 4(1), 13
Chiwira, O. (2021). The Co-Integrating Relationship between Financial Inclusion and Economic Growth in the Southern African Development Community. Eurasian Journal of Economics and Finance, 9(3), 170-188.
Chelli, M., Durocher, S., & Richard, J. (2014). France’s new economic regulations: insights from institutional legitimacy theory. Accounting, Auditing & Accountability Journal, 27(2), 283–316. https://doi.org/10.1108/aaaj-07-2013-1415
Dahiya, S., & Kumar, M. (2020). Linkage between financial inclusion and economic growth: An empirical study of emerging Indian economy. Vision: The Journal of Business Perspective, 24(2), 097226292092389. https://doi.org/10.1177/0972262920923891
Epaphra, M., & Kombe, A. H. (2017). Institutions and economic growth in Africa: Evidence from panel estimation. Business and Economic Horizons, 13(5), 570–590. https://doi.org/10.15208/beh.2017.39
Ewetan, O. O., Matthew, O.A., Babajide, A.A., Osabohien, R., & Urhie, E. (2020a). Fiscal federalism and economic development in Nigeria: An auto-regressive distributed lag approach, Cogent Social Sciences, 6:1, 1789370. https://doi.org/10.1080/23311886.2020.1789370
Festré, A., & Nasica, E. (2009). Schumpeter on money, banking and finance: An institutionalist perspective. The European Journal of the History of Economic Thought, 16(2), 325–356. https://doi.org/10.1080/
Hodgson, G. M. (1989). Institutional economic theory: the old versus the new. Review of Political Economy, 1(3), 249–269. https://doi.org/10.1080/09538258900000021
Iddrisu, K., Doku, J. N., Abor, J. Y., & Dziwornu, R. (2023). Financial inclusion and inclusive growth in Africa: What is the moderation role of financial stability? Cogent Economics & Finance, 11(2), 1–19. https://doi.org/10.1080/23322039.2023.2267857
Iheonu, C., Ihedimma, G. & Onwuanaku, C. (2017). Institutional Quality and Economic Performance in West Africa. MPRA Paper No. 82212
Jisike, O J. & Ifeanyi, N. O. (2021). Financial Inclusion and Economic Growth in Nigeria: An Empirical Study. International Journal of Research and Innovation in Social Science (IJRISS), 5(1), 323 – 330
Jellema, J., & Roland, G. (2011). Institutional clusters and economic performance. Journal of Economic Behavior & Organization, 79(1-2), 108–132. https://doi.org/10.1016/j.jebo.2011.04.003
Kazeem, B.L.O. (2021). Impact of financial development on Inclusive growth in Nigeria. Journal of Accounting and Management, 11(3), 137 – 149.
Khan, N., Zafar, M., Okunlola, A. F., Zoltan, Z., & Robert, M. (2022a). Effects of financial inclusion on economic growth, poverty, sustainability, and financial efficiency: Evidence from the G20 countries. Sustainability, 14(19), 1–19. https://doi.org/10.3390/su141912688
King, R. G., & Ross, L. (1993). Finance and growth: Schumpeter might be right. Policy Research Working Paper Series, 108(3), 717–737. https://ideas.repec.org/p/wbk/wbrwps/1083.html
Le, T.H., Kim, J. and Lee, M. (2016). Institutional Quality, Trade Openness, and Financial Sector Development in Asia: An Empirical Investigation. Emerging Markets Finance and Trade, 52(5):1047-1059.
Matthew, O. A., Babajide, A. A., Osabohien, R., Adeniji, A., Ewetan, O. O., Adu, O., … & Itua, O. (2020). Challenges of Accountability and Development in Nigeria: An Auto-Regressive Distributed Lag Approach. Journal of Money Laundering Control, 23(2), 387-402. DOI 10.1108/JMLC-10-2019-0086
Menyelim, C. M., Babajide, A. A., Omankhanlen, A. E., & Ehikioya, B. I. (2021). Financial inclusion, income inequality and sustainable economic growth in sub-Saharan African countries. Sustainability, 13(4), 1780.
Mehmood, T., Alzoubi, H. M., Alshurideh, M., Al-Gasaymeh, A., & Ahmed, G. (2019). Schumpeterian Entrepreneurship theory Evolution and Relevance. Academy of Entrepreneurship Journal, 25(4).
Nawaz, S., Iqbal, N., & Khan, M. A. (2014). The impact of institutional quality on economic growth: Panel evidence. The Pakistan Development Review, 53(1), 15–31. https://doi.org/10.30541/v53i1pp.15-31
Ndungu, J. (2023). Nexus between financial inclusion and inclusive growth, the east Africa case study. African Journal of Economics and Sustainable Development, 6(4), 98–113. https://doi.org/10.52589/ajesd-w11m8zde
Nguyen, Y.H.D & Ha, D. T. T (2021). The effect of Institutional quality on Financial Inclusion in ASEAN Countries. Journal of Asian Finance, Economics, and Business, 8(8), 0421 - 0431.
Nkwede, F. (2015). Financial inclusion and economic growth in Africa: Insight from Nigeria. European Journal of Business and Management, 7(35), 71-80.
Nwisienyi, K. J. & Obi, O. A. (2020). An Analysis of Financial Inclusion and Economic Growth in Nigeria; an ARDL Approach. International Journal of Research and Innovation in Social Science, 4(10), 126-134.
Naudé, W. A. (2004). The effects of policy, institutions and geography on economic growth in africa: An econometric study based on cross-section and panel data. Journal of International Development, 16(6), 821–849. https://doi.org/10.1002/jid.1129
Olaoye, O.O., Bowale, E., & Ewetan, O.O. (2025). Financial inclusion on the nexus between environmental quality and energy consumption in low-income sub-Saharan Africa, International Journal of Energy Economics and Policy, 2025, 15(2), 756-765. http:// www.econjournals.com
Owolabi, O.A., Adedeji, A.O., Aderounmu, B., Oku, A.O., & Ogunbiyi, T. (2023). Do information and communication technology (ICT) and financial development contribute to economic diversification? Evidence from Sub-Saharan African. Journal of Economic Structures, 12:5, https://doi.org/10.1186/s40008-023-00299-7
Owolabi, O.A., Omeire, M.C., Okwudire, B.O., & Bolujoko, O.T. (2024). Education, electricity access, and income inequality in Nigeria, International Journal of Energy Economics and Policy 14(5), 149-161. http:// www.econjournals.com
Ozili, P. K., Ademiju, A., & Rachid, S. (2022). Impact of financial inclusion on economic growth: Review of existing literature and directions for future research. International Journal of Social Economics. https://doi.org/10.1108/ijse-05-2022-0339
Ogbuabor, J., Onyinye, A., & Emmanuel, J. (2020). Financial Inclusion and Monetary Policy Shocks Nexus in Nigeria: A New Empirical Evidence. 11. 364-388.
Olaniyi, E. (2017) Back to the Land: The Impact of Financial Inclusion on Agriculture in Nigeria. Iranian Economic Review, 21, 885-903.
Olanrewaju, G.O., Tella, S.A., & Adesoye, B.A. (2019). Institutional quality, Financial Inclusion, and inclusive growth: Causality Evidence from Nigeria. Central Bank of Nigeria Economic and Financial Review, 57(3), 39-60
Osakwe, S. (2020). How Can Developing Countries Reduce Financial Exclusion? A Critical Review of Nigeria’s Financial Inclusion Strategy (September 30, 2020). Making Finance Work for Africa, 2020. https://ssrn.com/abstract=3780805
Raji, R.O. (2021). Testing the Relationship between financial inclusion, Institutional quality, and Inclusive Growth for Nigeria. Journal of Humanities and Social Sciences Innovation, 1(1), 18-28.
Ratnawati, K. ( 2020). The Impact of Financial Inclusion on Economic Growth, Poverty, Income Inequality, and Financial Stability in Asia. Journal of Asian Finance, Economics and Business, 7(10), Roskamp, K. W. (1991). A Schumpeter model of economic Growth and Innovation. Credit and Capital Markets – Kredit Und Kapital, 24(2), 198–211. https://doi.org/10.3790/ccm.24.2.198
Siddiqui, D. A., & Ahmed, Q. M. (2013). The effect of institutions on economic growth: A global analysis based on GMM dynamic panel estimation. Structural Change and Economic Dynamics, 24, 18–33. https://doi.org/10.1016/j.strueco.2012.12.001
Slesman, L., Baharumshah, A. Z., & Ra’ees, W. (2015). Institutional infrastructure and economic growth in member countries of the Organization of Islamic Cooperation (OIC , 51, 214–226. https://doi.org/10.1016/j.econmod.2015.08.008 .
Sakanko, M., David, J., & Onimisi, A. (2020). Advancing inclusive growth in Nigeria: The role of financial inclusion in poverty, inequality, household expenditure, and unemployment. Indonesian Journal of Islamic Economics Research, 2(2), 70-84.
Sil, N. (2020). The impact of financial inclusion on inclusive growth in India’, Asian Journal of Economics, Finance, and Management (AJEFM), 2(4),140 – 161.
Singh, P. K., and Chudasama, H. (2020). Evaluating Poverty Alleviation Strategies in a Developing Country. PLOS ONE 15 (1), e0227176.Tashtamirov, M. (2023). The role of institutions in economic development and their impact on economic growth in different countries. SHS Web of Conferences, 172, 02005–02005. https://doi.org/10.1051/shsconf/202317202005
Timer, S., & Raza, S. A. (2023). Nonlinear relationship between financial inclusion and inclusive economic development in developed economies: evidence from panel smooth transition regression model. International Journal of Social Economics, 50(8), 1022-1037.
Uruakpa, N. I., Kalu, U. E., & Ufomadu, O. A. (2019). Impact of financial inclusion on economic growth of Nigeria. International Journal of Sustainable Development, 12(2), 46–58.
United Nations Development Programme (UNDP, 2015). 2018 Human Development Data Bank. http://hdr.undp.org/en/data.
Utile, T., Ijirshar, V. & Sem, A (2021). Impact of Institutional Quality on Economic Growth in Nigeria. Gusau International Journal of Management and Social Sciences, 4(3), 21- 32
Wanjiru, R. and Prime, K.S. (2020), “Institutional capacity, trade and investment in African economies”, The Handbook of Global Trade Policy, 418-438.
World Bank (2016) Poverty and shared prosperity 2016: taking on inequality. World Bank Group, Washington, DC. https://openknowledge.worldbank.org/bitstream/handle/10986/25078/97814 64809 583.pdf
World Bank (2018) Financial Inclusion Overview. Retrieved May 10, 2019, from https://www.worldbank.org/en/topic/financialinclusion/overview
World Bank (2019). World Development Indicators database. Washington, DC. http://data.worldbank.org.
Zahra, D., & Ajija, S. R. (2023). The effect of financial inclusion on inclusive economic growth in indonesia. JIET (Jurnal Ilmu Ekonomi Terapan), 8(1), 55–67. fhttps://doi.org/10.20473/jiet.v8i1.45426
Yıldırım, A., & Gökalp, M. F. (2016). Institutions and Economic performance: A review on the developing countries. Procedia Economics and Finance, 38, 347–359. https://doi.org/10.1016/s2212-5671(16)30207-6
Zallé, O. (2018). Natural resources and economic growth in Africa: The role of institutional quality and human capital. Resources Policy, 62, 616–624. https://doi.org/10.1016/j.resourpol.2018.11.009
Zia, I. Z., & Prasetyo, P. E. (2018). Analysis of financial inclusion toward poverty and income inequality. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi Dan Pembangunan, 19(1), 114. https://doi.org/10.23917/jep.v19i1.5879.
Downloads
Published
How to Cite
Issue
Section
License
I (we) submit this article which is original and unpublished, of my (our) own authorship, to the evaluation of the Veredas do Direito Journal, and agree that the related copyrights will become exclusive property of the Journal, being prohibited any partial or total copy in any other part or other printed or online communication vehicle dissociated from the Veredas do Direito Journal, without the necessary and prior authorization that should be requested in writing to Editor in Chief. I (we) also declare that there is no conflict of interest between the articles theme, the author (s) and enterprises, institutions or individuals.
I (we) recognize that the Veredas do Direito Journal is licensed under a CREATIVE COMMONS LICENSE.
Licença Creative Commons Attribution 3.0
