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Financial market evolution in Africa: Is it demand- following or supply-leading?

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  • Odhiambo, Nicholas M;
  • Nyasha, Sheilla;
  • Zerihun, Mulatu F;
  • Tipoy, Christian

Abstract

In this paper, we examine the dynamic causal relationship between financial development andeconomic growth in French- and English-speaking African countries during the period 1990-2014 ? using a trivariate panel Granger-causality model. The study uses three proxies offinancial development, namely: liquid liabilities (FD1), deposit money bank assets (FD2), andbank deposits (FD3) to examine this linkage. Our results show that the causality betweenfinancial development and economic growth differs significantly between English-speakingcountries and French-speaking countries. When FD1 and FD3 are used as proxies for financialdevelopment, a demand-following response is found to predominate in both French- andEnglish-speaking countries. However, when FD2 is used as a proxy, the study found aunidirectional causal flow from financial development to economic growth to prevail in FrenchspeakingAfrican countries, but failed to find any causal relationship between financialdevelopment and economic growth in English-speaking countries in either direction.

Suggested Citation

  • Odhiambo, Nicholas M; & Nyasha, Sheilla; & Zerihun, Mulatu F; & Tipoy, Christian, 2018. "Financial market evolution in Africa: Is it demand- following or supply-leading?," Working Papers 24947, University of South Africa, Department of Economics.
    • Handle: RePEc:uza:wpaper:24947
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