THE NEXUS AMONG INSTITUTIONAL QUALITY, FINANCIAL DEVELOPMENT, AND POVERTY IN SELECTED WEST AFRICAN COUNTRIES

Abstract

This study examines how institutions moderate the contribution of financial development to alleviating or spurring poverty in ten West African countries for period 1986–2021, using the dynamic panel threshold regression analysis. On an ordinal scale of 10, study found that the institutional quality threshold estimate was 3.75. The results of threshold estimation validate institutional component's nonlinearity. The study found that, in the selected West African countries, there is threshold value of institutional quality (3.75) below which financial development will have negative impact on poverty reduction as well as a value above which financial development will positively impact poverty. This is indicated by the negative coefficients of institutional quality index and financial development, which were -0.284 and -1.480 prior to threshold and positive, 0.320 & 5.089 after threshold. Study concludes that institutions must continuously maintain an institutional quality index above 3.75 before they are strong enough to prevent rent-seeking, opportunism, sharp practices, and corruption that hinder the financial sector's ability to finance financial intermediation & ultimately alleviate poverty. As a result, all parties involved including organizations in West African nations must make concerted effort to build political structures, bureaucratic standards, regulatory frameworks, law and order, and corruption prevention in order to reform and improve the quality of institutions.