MACROECONOMIC INSTABILITY, MICROFINANCE EFFECTIVENESS, AND POVERTY DYNAMICS IN NIGERIA: EVIDENCE FROM TIME-SERIES ANALYSIS

Abstract

This study examines the synergy between macroeconomic instability, microfinance effectiveness, and poverty

dynamics in Nigeria over the period 1990 2024. The study is motivated by the persistent rise in poverty levels

despite various financial inclusion initiatives and macroeconomic policy interventions in Nigeria. Annual time-series

data were employed, and the empirical analysis was conducted using the Autoregressive Distributed Lag (ARDL)

model as the baseline estimation technique, while Fully Modified Ordinary Least Squares (FMOLS) and Dynamic

Ordinary Least Squares (DOLS) were used as robustness checks to validate the long-run relationships among the

variables. The results reveal that macroeconomic instability significantly increases poverty in Nigeria, indicating

that inflationary pressures, exchange rate fluctuations, and economic uncertainty exacerbate household vulnerability

and weaken welfare outcomes. Furthermore, poverty is found to be highly persistent over time, confirming strong

path dependency in poverty dynamics. On the other hand, microfinance effectiveness indicators, including branch

expansion, borrower participation, deposits, and loans, exhibit significant poverty-reducing effects, highlighting the

role of financial inclusion in improving income generation and economic participation. Financial deepening also

contributes to poverty reduction, while exchange rate instability worsens poverty outcomes. The FMOLS and DOLS

results confirm the robustness and consistency of the ARDL findings. The study concludes that sustainable poverty

reduction in Nigeria requires a dual policy approach that combines macroeconomic stabilisation with strengthened

microfinance systems. It recommends policies aimed at stabilising the macroeconomic while expanding access to

microfinance services to enhance financial inclusion and improve welfare outcomes for low-income households

across the country.