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Financial development and economic growth: evidence from West Africa

Author

Listed:
  • Zaka Ratsimalahelo

    (University of Franche-Comté- CRESE)

  • Mamadou Diang Barry

    (University of Franche-Comté- CRESE)

Abstract

In this paper, we employ the Geweke (1982) decomposition method to examine the Granger causality between finance and growth in West Africa. Our sample contains twelve ECOWAS member countries (Economic Community of West African States) and we distinguish two subsamples: seven WAEMU countries which constitute an economic and monetary union (with the CFA Franc as their common currency) and five non-WAEMU countries. Data are from the World Bank (2008) and cover the period 1962-2006. The results show that:(1) finance leads economic growth in countries which have the common currency, (2) the reverse causation dominates in the other countries, (3) there is greater feedback between financial development and economic growth in countries sharing the common currency, (4) there is more instantaneous (contemporaneous) causality between finance and growth in WAEMU than in non-WAEMU countries suggesting that financial development affects growth and vice-versa in the short term in WAEMU countries. The first result can be explained by financial stability which suggests accelerating the process of creation of common currency for all West African countries. This paper highlights that the finance-growth nexus may vary across countries at similar stages of development and suggests that the existence of a stable monetary union may intensify the relationship between financial development and economic growth in developing countries.

Suggested Citation

  • Zaka Ratsimalahelo & Mamadou Diang Barry, 2010. "Financial development and economic growth: evidence from West Africa," Economics Bulletin, AccessEcon, vol. 30(4), pages 2996-3009.
    • Handle: RePEc:ebl:ecbull:eb-10-00330
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I4-P275.pdf
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    References listed on IDEAS

    as
    1. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    2. Roger Atindehou & Jean Pierre Gueyie & Edoh Kossi Amenounve, 2005. "Financial intermediation and economic growth: evidence from Western Africa," Applied Financial Economics, Taylor & Francis Journals, vol. 15(11), pages 777-790.
    3. World Bank, 2008. "World Development Indicators 2008," World Bank Publications - Books, The World Bank Group, number 11855.
    4. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2008. "Financial development and economic growth: The Egyptian experience," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 887-898.
    5. World Bank, 2008. "World Development Indicators 2008," World Bank Publications - Books, The World Bank Group, number 28241.
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    Citations

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    Cited by:

    1. Kizito Uyi Ehigiamusoe & Hooi Hooi Lean, 2019. "Influence of Real Exchange Rate on the Finance-Growth Nexus in the West African Region," Economies, MDPI, vol. 7(1), pages 1-21, March.
    2. Chiad, Faycal & GHERBI, Abdelhalim, 2024. "The Role of Islamic Banks in Promoting Economic Growth and Financial Stability: Evidence from Saudi Arabia," MPRA Paper 122409, University Library of Munich, Germany.
    3. King, Alan & Ramlogan-Dobson, Carlyn, 2015. "Is Africa Actually Developing?," World Development, Elsevier, vol. 66(C), pages 598-613.

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    More about this item

    Keywords

    Finance; growth; Granger causality; monetary union; ECOWAS; Geweke decomposition test. 1;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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