Threshold Effects in the Relationship between Interest Rate and Financial Inclusion in Nigeria

Authors

  • Olaniyi Evans

Keywords:

Interest Rate Thresholds, Interest Rate, Financial Inclusion, Threshold Model.

Abstract

This study uses a non-linear threshold model to shed light on the impact of interest rates on financial inclusion in Nigeria for the period 1981 to 2014. The findings suggest that the threshold level of interest rates in Nigeria is estimated at 16.9 percent. In other words, interest rate hampers financial inclusion if it exceeds 16.9%. Below this threshold, however, the impact of interest rate remains insignificant. Thus, the results of this study support financial inclusion-dampening effects of interest rates in Nigeria. The logical conclusion is that Nigeria, and other developing countries as well, with lending interest rates above 16.9 percent should aim to attain interest rate levels that do not deter financial inclusion by adopting polices that drive down interest rates.

References

Adeola, O., Evans, O. (2017a). Financial inclusion, financial development, and economic diversification in Nigeria. The Journal of Developing Areas, 51(3), pp. 1-15.

Adeola, O., Evans, O. (2017b). The impact of microfinance on financial inclusion in Nigeria. The Journal of Developing Areas, 51(4), pp. 193-206.

Athukorala, P. C. (1998). “Interest Rates, Saving and Investment: Evidence from Indiaâ€. Journal of Oxford Development Studies, Vol. 26, No. 2.

Awan, R. U., Munir, R., Hussain, Z., Sher, F. (2010). “Rate of Interest, Financial Liberalization & Domestic Savings Behavior in Pakistanâ€. International Journal of Economics and Finance, 2(4), pp. 75.

Bai, J., Perron, P. (2003). “Computation and analysis of multiple structural change modelsâ€. Journal of Applied Econometrics, 18(1), pp.1-22.

Chaddad, F. R., Cook, M. L., Heckelei, T. (2005). “Testing for the presence of financial constraints in US agricultural cooperatives: an investment behaviour approach.†Journal of Agricultural Economics, 56(3), pp. 385-397.

Demirgüç-Kunt, A., Klapper, L. (2013). “Measuring financial inclusion: Explaining variation in use of financial services across and within countries.†Brookings Papers on Economic Activity, 2013(1), pp. 279-340.

Demirgüç-Kunt, A., Klapper, L., Singer, D., Oudheusden, P. (2014). Measuring financial inclusion: The Global Findex database. The World Bank Policy Research Paper 7255 available on http://documents.worldbank.org/curated/en/18776146817936776/ pdf. WPS7255. pdf

Dev, S. M. (2006). “Financial inclusion: Issues and challenges.†Economic and political weekly, pp. 4310-4313.

Evans, O., Lawanson, O. (2017). A Multi-Sectoral Study of Financial Inclusion and Economic Output in Nigeria, Ovidius University Annals, Economic Sciences Series, Volume XVII, Issue 1

Evans, O., Saibu, O. (2017) Quantifying the Impact of Monetary and Exchange Rate Policies on Economic Diversification in Nigeria: A Bayesian VAR Analysis, Nigerian Journal of Economic and Social Studies.

Evans, O. (2015). The Effects of Economic and Financial Development on Financial Inclusion in Africa. Review of Economic and Development Studies, 1(I), pp. 17-25

Evans, O. (2016). The Effectiveness of Monetary Policy in Africa: Modeling the Impact of Financial Inclusion. Iranian Economic Review, 20(3), pp. 327-337.

Evans, O. (2017). Back to the Land: The Impact of Financial Inclusion on Agriculture in Nigeria. Iranian Economic Review, 21(4)

Evans, O., Adeoye, B. (2016). The Determinants of Financial Inclusion in Africa: A Dynamic Panel Data Approach, University of Mauritius Research Journal, 22, pp. 310-336.

Fan, Z., Zhang, R. (2017). “Financial Inclusion, Entry Barriers and Entrepreneurship: Evidence from Chinaâ€. Sustainability, 9(2), pp. 203.

Favero, C. A., Giavazzi, F. (2005). “Inflation targeting and debt: lessons from Brazilâ€. In: Giavazzi, F., Goldfajn, I., Herrera, S. (eds) Inflation targeting, debt and the Brazilian experience, 1999 to 2003. MIT Press

Global Partnership for Financial Inclusion (2016). Available at: https://www.gpfi.org.

Hansen, B. E. (2001). “The new econometrics of structural change: Dating breaks in US labor productivityâ€. The Journal of Economic Perspectives, 15(4), pp.117-128.

Johansen, S. (1991). “Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vector Autoregressive Modelsâ€, Econometrica, Vol. 59, pp. 1551-1580.

Johansen, S. (1995). “Likelihood-Based Inference in Cointegrated Vector Autoregressive Modelsâ€. Oxford University Press, Oxford.

Karlan, D. S., Zinman, J. (2006). “Credit Elasticity’s in Less-Developed Economies: Implications for Microfinanceâ€.

Kwiatkowski, D., Phillips, P. C., Schmidt, P., Shin, Y. (1992). “Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root?†Journal of Econometrics, 54(1), pp.159-178.

Massara, M. A., Mialou, A. (2014). “Assessing countries’ financial inclusion standing - A new composite index†(No. 14-36). International Monetary Fund.

Mbutor, M. O., Uba, I. A. (2013). The impact of financial inclusion on monetary policy in Nigeria. Journal of Economics and International Finance, 5(8), pp. 318.

Mckinnon, R, I. (1973). “Money and Capital in Economic Developmentâ€, Washington, DC, Brooking Institute.

Miller, H. (2013). “Interest Rate Caps and their Impact on Financial Inclusionâ€, Economic and Private Sector, Professional Evidence and Applied Knowledge Services.

Obamuyi, T. M., Demehin, J. A. (2012). “Interest rate reforms and financial deepening in Nigeriaâ€. The International Journal of Business and Finance Research, 6(2), pp. 81-90.

Perron, P. (2006). “Dealing with structural breaksâ€. Palgrave handbook of econometrics, 1, pp. 278-352.

Rosenberg, R., Gonzalez, A., Narain, S. (2009). “The new money lenders: are the poor being exploited by high microcredit interest rates?†Moving beyond storytelling: emerging research in microfinance (Contemporary studies in economic and financial analysis, volume 92). Emerald Group Publishing Limited, Bingley, pp.145-181.

Russell, R., Bowman, D., Banks, M., de Silva, A. (2017). “All being well?†Financial wellbeing, inclusion and risk–seminar summary.

Sarma, M. (2008). “Index of financial inclusionâ€. New Delhi: Indian Council for Research on International Economics Relations.

Shrestha, M. B., Chowdhury, K. (2007). Testing financial liberalization hypothesis with ARDL modelling approach. Applied Financial Economics, 17(18), pp. 1529-1540.

Souza, S., Devaraja, T. (2017). “Analysis of Business Correspondents Role in the Process of Financial Inclusion Driveâ€. International Journal of Scientific Research, 5(11).

Soyibo, A., Olayiwola, K. (2000). “Interest Rate Policy and the Promotion of Savings Investment and Resource Mobilization in Nigeriaâ€. Research Report 24, Development Policy Centre, Ibadan.

Thorat, U. (2006). “Financial inclusion and millennium development goalsâ€. RBI Bulletin, 50(2), pp. 239-243.

World Bank (2017). Financial Inclusion Overview. Available at: http://www.worldbank.org/en/topic/financialinclusion/overview. [Accessed 14 December 2017].

Downloads

Published

2018-03-14