Financial Constraints and Private Sector Development Within the ECOWAS

The paper postulates that limited finance is the primary impediment to private sector development and proceeds to highlight this using an endogenous growth model in a panel data framework of ECOWAS countries. The significance of finance in spurring growth has been initially debated upon and finally proven in the literature both at the macro level; across countries (King and Levine, Q J Econ108(3):688–726,1993; Levine and Zervos, Am Econ Rev 88(3):537–558, 1998) and at the micro level within industries (Rajan and Zingales, Am Econ Rev 88:559–586, 1998; Guiso et al., Econ Pol 19(40):523–577, 2005, Beck et al., Finance, firm size and growth”, NBER (Cambridge, MA) Working Paper 10983, 2006). The paper will thus attempt to prove a case for ECOWAS countries and thereafter postulate means of increasing finance available to the private sector. The advent of the recent global financial crisis which created adverse and complex socio-economic conditions requires rethinking policy design in order to build sound and resilient structures of the economy. This renews the question of the role that the private sector plays within West African economies and considerations as to how its potential can be used to foster economic growth and development. Credit earmarked for the private sector has been increasing over the last decade but as this paper argues, the speed necessitates acceleration in order to achieve positive economic outcomes. After proving the significance of finance in contributing to economic development within the ECOWAS, the second part of the paper proceeds to consider the determinants of the supply of credit within the sampled countries. An economic diversification index is included within the credit supply model for the purpose of evaluating the capability of countries to resist negative shocks. Furthermore, exhibitions of resilience by the sampled countries translates into investment appeal for highly liquid investors seeking risk minimisation and in turn lessen the credit constraints faced by local ECOWAS firms. A greater comprehension of the determinants of credit within ECOWAS states will reveal means via which suitable policies can be designed to enhance the workings of the private sector and promote sustainable development.