The Effects of Financial Development and Trade Openness on Economic Growth: Evidence from Sub-Saharan African Countries.
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Date
2024-06-30
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A.A.U
Abstract
For a panel of 21 SSA nations, this study looks at the impacts of financial development and trade openness on economic growth from 2005 to 2018 using balanced data and there is no data for some countries between 2019 and 2022 on some variables. Opposite to most existing studies, the analysis makes use of random effect model that is more efficient as it captures both the within and the between variation of the data and heterogeneity across countries. The panel analysis's findings forwarded that economic growth benefits from trade openness and financial development and the presence of long-term relationships is demonstrated using cointegration test. Unemployment, FDI and inflation are used as control variables. Unemployment and inflation have showed the negative relationship with economic growth which is in accordance with the existing economic theory whereas strong justification has presented for the negative relationship between FDI and economic growth.
The results also show that expanding domestic loans to the private sector and the number of commercial bank branches are important channels via which financial development supports economic expansion. Granger causality tests demonstrate the causal relationship between economic growth and trade openness and between economic growth and financial development. The results have showed important policy ramifications for trade openness, financial development, and economic expansion in SSA nations.