Name: James Mageto Nyamweya

Topic: Economic Growth, Financial Deepening, Income Distribution, Financial Efficiency and Poverty Levels in East African Community Countries

Abstract:

The study examined the relationship between economic growth, financial deepening, income distribution, financial efficiency and poverty levels in East African Community countries. The key theories underpinning this study were liberal theory, financial intermediation theory, information asymmetry theory, Public choice theory of distribution and neo classical utility theory. The specific objectives of the study included establishing the effect of economic growth on poverty levels in EAC countries; determining the effect of financial deepening on the relationship between economic growth and poverty levels in EAC countries; examining the effect of income distribution on the relationship between economic growth and poverty levels in EAC countries; examining the effect of financial efficiency on the relationship between economic growth and poverty levels in EAC countries; determining the joint effect of economic growth, financial deepening, income distribution and financial efficiency on poverty levels in EAC countries; and comparing the relationship between economic growth, financial deepening, income distribution and financial efficiency on poverty levels among EAC countries. The positivism philosophy was adopted throughout the study. The study adopted both comparative and descriptive research designs. The study population was the five countries of EAC countries which included Kenya, Rwanda, Uganda, Burundi, and Tanzania. Annual data for 30 years beginning 1989 to 2018 was gathered for the study purpose. Secondary data, which consisted of annual data, was utilized in the study. The study employed normality, heteroscedasticity, multicollinearity, serial correlation, Optimal lag test, unit root diagnostic tests, cointegration test and cross sectional correlation test. The data was analyzed using both descriptive and inferential statistics with the help of excel and STATA version 14. Inferential statistics analysis was performed based on Vector Error Correction Model (VECM) for country specific relationship and Feasible Generalised Least Squares (FGLS) panel data regression models for overall results and hypotheses testing to ascertain the causal effect link between various variables relating to economic growth, financial deepening, income distribution, financial efficiency and poverty levels in EAC member countries. The tests of hypotheses were examined at 95% confidence level. The study adopts FGLS panel data regression models to determine the link between economic growth, financial deepening, income distribution, financial efficiency and poverty levels. The study results revealed that economic growth had a significant effect on poverty levels in East African Community countries. The study also revealed that financial deepening has a significant mediating effect on the link between economic growth and poverty levels in East African Community countries. In addition, the study revealed that income distribution has a significant mediating effect on the link between economic growth and poverty levels in East African Community countries. The study also found out that financial efficiency has no significant moderating effect on the link between economic growth and poverty levels in East African Community countries. Finally, the study revealed that the joint effect of economic growth, financial deepening, income distribution and financial efficiency on poverty levels in East African Community countries was statistically significant. The study recommends that the EAC governments should put down concrete plans aimed at improving economic growth rates. In addition, the governments of EAC countries to work towards encouraging financial deepening within their respective countries.