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Assessing the finance led growth hypothesis: Empirical evidence from sub-Saharan Africa

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  • Kore Marc Guei
  • Ireen Choga

Abstract

Financial development and economic growth nexus is still an ongoing debate. Several studies have indicated the positive benefits associated with enhancing financial development. Nevertheless, more work can still be done to reap the full benefits of financial development. With growing social disparities in African countries, identifying the channels through which financial services can be effective is important to maintain stability on the continent. This paper employs a system generalized methods of moments (GMM) technique, to attempt to identify the channels through which financial services can be effective. The paper tests such an effect using a panel of 30 countries in sub-Saharan Africa from 2005 to 2016. The results suggest that credit provided by financial institutions and liquid liabilities affect economic growth negatively. Credit to the private sector, on the other hand, contributed significantly to GDP growth. The study underlines the important role of a vibrant private sector to serve as an engine for growth and reduce poverty.

Suggested Citation

  • Kore Marc Guei & Ireen Choga, 2022. "Assessing the finance led growth hypothesis: Empirical evidence from sub-Saharan Africa," African Journal of Science, Technology, Innovation and Development, Taylor & Francis Journals, vol. 14(1), pages 114-120, January.
    • Handle: RePEc:taf:rajsxx:v:14:y:2022:i:1:p:114-120
    DOI: 10.1080/20421338.2020.1815945
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    Cited by:

    1. Ichiro Iwasaki & Shigeki Ono, 2024. "Economic development and the finance–growth nexus: a meta-analytic approach," Applied Economics, Taylor & Francis Journals, vol. 56(57), pages 8021-8038, December.
    2. Evans Kulu, 2023. "Financial stability gap and private investment nexus: Evidence from sub‐Saharan Africa," African Development Review, African Development Bank, vol. 35(2), pages 239-250, June.

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