FINANCIAL INCLUSION AND INCLUSIVE GROWTH IN NIGERIA: THE ROLE OF INSTITUTIONAL QUALITY

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.