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Financial Deepening and Economic Growth in 7 Sub-Saharan Africa: An Application of System GMM Panel Analysis

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  • R. Santos Alimi

Abstract

This paper empirically explored the link between the level of financial development and economic growth in 7 Sub-Saharan African countries for the period of 1981to2013. The study employed both static and dynamic panel data approach, to investigate the relation between financial development and economic growth for Nigeria, South Africa, Lesotho, Malawi, Sierra Leone, Botswana and Kenya. Using domestic credit to the private sector as a proxy for financial development, the study found that financial development has not contributed to economic growth in the panel of the selected countries, therefore thus lending support for the independent hypothesis which postulates that financial development and economic growth are causally independent. Also, the study reported that only interest rate suggested positive effect on economic growth out of the two determinants of growth considered in the estimated model. The policy implication of the findings is that there is ardent need to develop the financial sector in order to spur real growth in the economies of these countries and thus recommend the development of microfinance institutions as a complement to the conventional commercial banks in order to enhance mobilisation of savings and provide easy access to fund, thus engendering growth process in the Sub-Saharan Africa.

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  • R. Santos Alimi, 2015. "Financial Deepening and Economic Growth in 7 Sub-Saharan Africa: An Application of System GMM Panel Analysis," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 4(5), pages 244-252.
    • Handle: RePEc:rss:jnljee:v4i5p1
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