RELATIONSHIP BETWEEN ECONOMIC GROWTH, FINANCIAL DEEPENING, INCOME DISTRIBUTION, FINANCIAL EFFICIENCY AND POVERTY LEVELS WITHIN EAST AFRICA COMMUNITY MEMBER COUNTRIES

Nyamweya J M; Ochieng D E; Ondigo H; Magutu P O

Nyamweya J M PhD Candidate, University of Nairobi, Schools of business, Department of Finance and Accounting
Ochieng D E Lecturer, University of Nairobi, Schools of business, Department of Finance and Accounting
Ondigo H
Magutu P O Senior Lecturer, University of Nairobi, Schools of business, Department of Management Science

Abstract

Abstract

Purpose: The purpose of this study was to examine the relationship between economic growth, financial deepening, income distribution, financial efficiency and poverty levels in East Africa Community member countries.

Methodology: The study adopted descriptive research designs. The study population was the five countries of EAC countries that included Kenya, Rwanda, Uganda, Burundi, and Tanzania. Annual secondary data for 30 years beginning 1989 to 2018 was gathered for the study purpose. The data was analyzed with the help of excel and STATA version 14. Feasible Generalised Least Squares (FGLS) panel data regression models was used for hypotheses testing. The tests of hypotheses were examined at 95% confidence level.

Findings: The study results revealed that the joint effect of economic growth, financial deepening, income distribution and financial efficiency on poverty levels in East Africa Community countries was statistically significant at 0.05 level of significance. The study therefore rejected the null hypothesis. Additionally, the study examined the individual effect of the explanatory variables. Economic growth and financial deepening had a significant effect on poverty levels in East Africa Community countries. However, the effect of income distribution and financial efficiency on poverty levels in East Africa Community countries was not statistically significant.

Implications: The study concludes that economic growth, financial deepening, income distribution and financial efficiency are critical to poverty eradication in East Africa Community countries. Specifically, improved and sustainable economic growth leads to poverty level reduction among EAC countries. The growth in economy through real GDP growth translates to income in the hands of the poor masses hence poverty reduction. Additionally, financial deepening in terms of credit to private sector also leads to reduction in poverty level through access to various financial product for wealth creation. .

Value: The study recommends that the governments of East Africa Community countries should ensure stable and consistent GDP growth rates to eradicate poverty among the countries. Additionally, the study recommends that the governments of the East Africa Community countries to facilitate financial deepening by empowering players in the banking and capital markets.

Key Words: Economic Growth, Financial Deepening, Income Distribution, Financial Efficiency and Poverty Levels