Financial Development and Economic Growth in Sub - Saharan Africa: A Panel Data Approach
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Date
2007-10
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A.A.U
Abstract
The impact of financial development in economic growth remains to be controversial despite
intensive research on the issue. Moreover, the correlation between financial development and
the level of economic development is not clear. This, along with the lack of econometrically
strong empirical studies, is the motive to undertake a separate study in SSA .
Using a panel data set of 27 SSA countries for the period 1974-2003, three different growth
models are estimated by the systems GMM estimator that is found to be effective in solving
the problems of endogeneity and omitted variable bias, which are common in pure cross-country
regressions. We obtained a negligible support to the view that finance leads economic
growth. Though financial development is found to positively influence physical capital growth
in SSA, its insignificant impact on Total Factor Productivity has led financial development be
unimportant factor for economic growth. This may reflect the smallness of the financial sector
and the repressive financial policies, which were common in the region.
Hence, policy measures geared towards improving the efficiency promoting role of the
financial sector should be given due emphasis if the economy is to benefit From financial
development.
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Keywords
Panel Data Approach, Sub - Saharan Africa