Monetary System Development and Income Distribution in Nigeria

Abstract

This study evaluates the efficacy of the monetary system via its operations and policies at reducing the level of income inequality in Nigeria over the period of 1981 to 2017. The study employs the Autoregressive Distributive Lag model estimation and the Generalized Method of Moments in light of the varying order of stationarity and nature of employed variables. The study identifies the absence of the Kuznet’s U-shape trend in the Nigerian Gini coefficient and it is observed that only Credit mobilization ratio, Accessibility index and monetary policy implementation index (POX) have significant moment effect on the income distribution. While the level of credit mobilized widen the inequality gap, accessibility of financial institutions and policy implemented can be seen to be reducing the widening inequality Gap in the country. It is recommended in light of the findings that; Credit mobilization should be closely monitored to prevent insider abuse by fund custodians and administrators that might allocate credit based on nepotism. A reasonable proportion of credit should be mobilized to the low-income earners and rural dwellers. Financial Depth should be curtailed through the promotion of the cash-lite policy. This would reduce the possibility of illicit movement of funds and money laundering. It would also help in creating a more inclusive environment and accessibility to financial institutions should be further promoted for those at the grass-root level through the deployment of micro-credits and services.

Keywords: Monetary system development, financial development, income distribution, income inequality.

DOI: 10.7176/RJFA/11-8-17

Publication date: April 30^th 2020