Causality between Financial Development and Economic Growth: Evidence from10 Sub-Sahara African Countries (2002-2013)

Gylych JELILOV, Chidiogo Mary ILE, Abdurahman ISIK, Kenneth DIYOKE

Abstract


This study empirically examines the impact and direction of causality between financial development and economic growth in 10sub-Saharan African countries for the period 2002 to 2013. The empirical investigation was carried out using the static panel data where three possible procedures were considered; the pooled (OLS); fixed effects (FE) and random effects (RE) methods, each with its underlying assumptions necessary to obtain unbiased and efficient estimates. Our results showed that the fixed model is preferred. This presupposes that the individual specific effects in each country’s development finance can no longer be ignored, in examining their impacts on the country’s economic growth. Also, the results of the co integration test, provides evidence of the existence of a long-run relationship between financial development and economic growth in all the countries studied. The fixed effect model results also indicate that financial development plays a causal role on economic growth, again in all the countries studied.  These findings imply that Sub-Sahara African countries can accelerate their economic growth by improving their financial systems.


Keywords


financial development; economic growth; Static Panel Data

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DOI: http://dx.doi.org/10.20321/nilejbe.v2i3.65

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