Financial Development and Economic Growth: The Experience of 10 Sub-Saharan African Countries Revisited (original) (raw)
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South African Journal of Economic and Management Sciences, 2011
In this paper we review the literature on the finance-growth nexus and investigate the causality between financial development and economic growth in Sub-Saharan Africa for the period 1975-2005. Using panel co-integration and panel GMM estimation for causality, the results of the panel co-integration analysis provide evidence of no long-run relationship between financial development and economic growth. The empirical findings in the paper show a bi-directional causal relationship between the growth of real GDP per capita and the domestic credit provided by the banking sector for the panels of 24 Sub-Saharan African countries. The findings imply that African countries can accelerate their economic growth by improving their financial systems and vice versa.
Volume 16, Issue 1, January-March 2025 , 2025
This study examines the relationship between financial development and economic growth in seven countries of the Economic Community of West African States (ECOWAS) from 1970 to 2018. Vector autoregression and the Granger causality method were employed in this study to reveal the impact of financial development on investment, which is essential for long-term economic growth. In our study, investment, credit to the private sector, broad money, foreign direct investment, general government final expenditures, foreign trade, and savings are used as variables. The results of the analysis reveal that financial development indicators have a positive effect on investment. However, the degree of this effect differs from country to country. Credit to the private sector and broad money, which are indicators of financial development in some countries, have a low impact on investment, while in other countries, the impact is strong. Regarding Granger causality, four different results werefound across the countries:a bidirectional causality between financial development and investment, a unidirectional causal flow from investment to financial development, a unidirectional causal flow from financial development indicators to investment, and no causality between financial development and investment.
Does Financial Development Hold the Key to Economic Growth?: The Case Of Sub-Saharan Africa
The Journal of Developing Areas, 2013
The paper investigates the relationship between financial development and economic growth in seven Sub-Saharan Africa countries. Using the panel Granger causality test, the study finds oneway causality running from economic growth to bank developing indicators and a two-way causality between stock market development indicators and economic growth. The fixed-effects estimation shows stock market development has positive and significant effect on economic growth while banking development indicators impact on economic growth is uncertain. Control variables including capital formation, schooling, and life expectancy have positive effect on economic growth. Based on these findings, the study suggests for adoption of policies that create favorable environment for financial market development including efforts to integrate the small capital markets.
Can financial development influence economic growth: The sub-Saharan analysis?
Journal of Economic and Financial Sciences, 2019
Orientation: Financial sector development in a vast majority of sub-Saharan African countries has the potential to reduce the volatility of growth.Research purpose: This article is aimed at determining the influence of financial development on economic growth in selected sub-Saharan African countries.Motivation for the study: In most of the sub-Saharan countries, financial sectors are among the world’s least developed, and the absence of deep, efficient financial markets puts major constraints on economic growth.Research approach/design and method: This article employed panel autoregressive and distributive lag model to determine the relationship between financial development and economic growth.Main findings: The results indicated that there exists a short- and a long-run relationship between financial development and economic growth in the selected countries. In the long run, bank credit to the private sector and liquid liabilities have a positive influence on economic growth, wit...
The Relationship between Financial Development and Economic Growth in Africa
This study examines the relationship between financial development and economic growth. It presents evidence on a cross section of 50 African countries whose data is available for the period 1980-2008. Two proxies of financial development are employed: the ratio of credit to the private sector to total GDP and the ratio of broad money (M2) to total GDP. We establish a positive relationship between financial development and economic growth. However, we find that the relationship between private sector credit and economic growth is much stronger than the relationship between money supply and economic growth. In addition, we find that the relationship between financial sector development and economic growth is bi-directional. The results suggest that both the financial sector and the real sector are important in influencing Africa's current and future growth trajectory.
This study attempts an investigation of the relationship between financial development and economic growth for three West African countries: Cote d’Ivoire, Ghana and Nigeria during the period 1996 through 2009. It seeks to achieve this objective using country-level as well as pooled ordinary least squares regression analysis. Financial development is proxied by domestic credit (DCY), stock market turnover ratio (SMTR), and money supply (M2); while economic growth is measured by annual growth rate of real GDP. The results reveal that the choice of financial development proxy determines the nature and magnitude of the relationship between financial development and economic growth in the countries under study. The findings say that only domestic credit has a significant negative relationship in Cote d’Ivoire. For Ghana and Nigeria however, none of the measures of financial development selected has a significant impact on economic growth. But at the regional level, domestic credit and money supply were found to be statistically significant, having negative and positive relationships respectively. The study recommends that the financial system in these countries needs to be improved through financial deepening and liberalization. Another important policy implication is that domestic credits provided by the banking sector should be put into their appropriate uses; this will go a long way in stimulating economic growth and development.
Financial Development and Economic Growth in Emerging Markets: The Nigerian Experience
2012
The paper provides new evidence on the empirical relationship between financial development and economic growth in Nigeria. Time-series data from 1973 to 2009 were employed to run the econometric analysis of cointegration and Vector Error Correction Model (VECM). The Granger causality test was also adopted to test the direction of causality between financial development and economic growth in the country. The results of the study reveal that there exists a bi-directional causality between economic growth and financial development in the country. The results of this study provide evidence for the government to identify those financial development and growth variables that contribute to the overall economic performance in Nigeria.
FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN SELECTED AFRICAN COUNTRIES: PANEL DATA ANALYSIS
Healthy functioning of the financial system leads to higher contribution to country's massive economic growth and development however such theoretical presumptions if accompanied and supported by empirical finding, the result comes acceptable for consumption by various agencies and may be used for further investigations. This paper work is an attempt to investigate the nexus between financial development and economic growth in 10 selected African countries Nigeria, South Africa, Egypt, Algeria, Morocco, Kenya, Ethiopia, Ghana, Tunisia, and Mauritius through analysis of annual panel data for the period 1990-2018. Using secondary data the study employs the fixed effects (FE) and random effects (RE) model and confirms that there is positive relationship between financial development and economic growth for all countries. Thus, it is necessary to give prior attention to financial development in the selected region to promote sustainable economic growth for eradication of poverty.
Financial Development and Economic Growth: A Comparative Analysis of Nigeria and South Africa
Zenodo (CERN European Organization for Nuclear Research), 2022
Advances in the financial system have been acclaimed to improve economic growth, drawing from theories of the latter. This study set out to test this hypothesis with respect to financial institutions and markets in the two largest economies of Sub-Saharan Africa. Economic growth for both countries is measured by gross domestic product annual growth, as the explained variable. Financial development is measured by institutions and markets. The dependent variable by financial institutions includes money supply, bank branches, interest rate spread, and bank capital to asset ratio. For financial markets, market capitalization, traded value excluding top 10 traded companies to total traded value, market turnover, and stock price volatility. Data is obtained from the World Bank for both countries. Two models are developed, one for each country. For analysis, the Augmented Dickey-Fuller unit root test, and autoregressive distributive lag are employed. The results indicated that of all variables considered only money supply (financial depth by the institution) had a significant, yet negative influence on economic growth in Nigeria. No dimension of financial development is related to output in the long term for South Africa. The study inferred that financial development in both countries is yet to advance sufficiently to make desired effect on economic growth. Expansion of financial institution market and institutions in the form of exchange growth scheme (for small and medium businesses) and rural bank branching was recommended by the study.