Financial development and poverty reduction in developing countries

Abstract

The poverty becomes a serious problem because of the impact it causes. The factors that affect poverty are economic growth, low education, the limitation of natural resources, the limitation of employment opportunities, capital, and family burdens. All of these factors constitute a vicious circle in the problem of poverty. The problems studied are lag-1 investment, lag-2 investment, employment opportunities, and provincial minimum wages and their effects on the poverty rates in Riau Province, Indonesia. The fundamental problem faced by Riau Province today is the high level of poverty amidst government policies that have not met the expectations. The purpose of this study is to analyze government policies in order to reduce the poverty. The research method used was an explanatory study or hypothesis testing study that aims to explain and test hypotheses for the relationship among variables. The relationship described is a causal (cause-effect) relationship. The data were arranged in the form of time series during 1997-2018. The research model was formulated as a linear function based on the Nerlove’s Partial Adjustment Model approach and was recursively analyzed using linear regression through the Ordinary Least Square (OLS) method. The findings of this research model are lag-1 investment, lag-2 investment, employment opportunities, and provincial minimum wages have a significant effect on the poverty rate in Riau Province.