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Does bank-based financial development spur economic growth? Empirical evidence from the Democratic Republic of Congo (DRC)

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  • Odhiambo, Nicholas M
  • Nyasha, Sheilla

Abstract

In this study, we examined the dynamic causality between financial development and economicgrowth in the Democratic Republic of the Congo (DRC), using time-series data from 1965 to2015. Unlike some previous studies, the current study used three proxies to examine thislinkage. These are liquid liabilities as a percentage of GDP (FD1), deposit money bank assetsas a percentage of GDP (FD2), and bank deposits as a percentage of GDP (FD3). In addition,the study used savings and inflation as intermittent variables, thereby creating a multivariateGranger-causality model, and limiting the omission-of-variable bias, which has been found insome previous studies. Using the ARDL bounds testing approach, the study found that there isa short-run causal relationship between financial development and economic growth in theDRC, but the direction of causality is dependent on the proxy used to measure the level offinancial development. When financial development was proxied by liquid liabilities as apercentage of GDP, unidirectional Granger-causality was found to prevail in the short run,running from economic growth to financial development. However, when deposit money bankassets as a percentage of GDP and bank deposits as a percentage of GDP were used as proxies,causality between financial development and economic growth was found to be bidirectional,but only in the short run. The study recommends that policy efforts in the DRC should bedirected at developing both the financial sector and the real sector in the short run as bothsectors have been found to be mutually beneficial to each other in the main, in this study.

Suggested Citation

  • Odhiambo, Nicholas M & Nyasha, Sheilla, 2019. "Does bank-based financial development spur economic growth? Empirical evidence from the Democratic Republic of Congo (DRC)," Working Papers 25710, University of South Africa, Department of Economics.
    • Handle: RePEc:uza:wpaper:25710
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    Cited by:

    1. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2022. "Bank Development and Unemployment in Kenya: An Empirical Investigation," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 20(2 (Summer), pages 85-107.
    2. Mercy. T. Musakwa & N. M. Odhiambo, 2020. "Remittance Inflows and Poverty Dynamics in South Africa: An Empirical Investigation," SAGE Open, , vol. 10(4), pages 21582440209, December.
    3. Odhiambo, Nicholas M & Nyasha, Sheilla, 2020. "Is tourism a spur to economic growth in South Africa: An empirical investigation," Working Papers 26731, University of South Africa, Department of Economics.
    4. S. Nyasha & M.T. Musakwa & N.M. Odhiambo, 2022. "Bank Development and Unemployment in Kenya: An Empirical Investigation," Working Papers AESRI-2022-18, African Economic and Social Research Institute (AESRI), revised Jun 2022.

    More about this item

    Keywords

    Financial Development; Economic Growth; Granger-Causality Test; Democratic Republic of Congo; DRC;
    All these keywords.

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