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Financial and Monetary Reforms and the Finance-Growth Relationship in Zimbabwe

Author

Listed:
  • Takawira Tyavambiza

    (Department of Finance, National University of Science and Technology, Bulawayo, Zimbabwe,)

  • Davis Nyangara

    (Department of Finance, National University of Science and Technology, Bulawayo, Zimbabwe.)

Abstract

The study employs the Granger causality test in a multivariate cointegration and error correction environment to examine the relationship between financial development and economic growth in Zimbabwe. Using annual data from 1980 to 2012, and after controlling for financial and monetary reforms, the study demonstrates a unidirectional causal relationship that runs from financial development to economic growth. The evidence shows that financial development; banking sector development in particular, is not a passive response to economic growth. Instead, it is a critical tool for accelerating economic growth. Policy implications of this evidence are that the banking sector in Zimbabwe must be supported with policies that encourage credit expansion and innovation to support economic growth. The equities market, on the other hand, requires more investor-friendly innovations and policies, especially with regard to trading efficiency and foreign investor participation in the primary market. In combination, these policy interventions should be able to magnify the positive effect of financial development on economic growth.

Suggested Citation

  • Takawira Tyavambiza & Davis Nyangara, 2015. "Financial and Monetary Reforms and the Finance-Growth Relationship in Zimbabwe," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 590-602.
    • Handle: RePEc:eco:journ1:2015-02-32
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    References listed on IDEAS

    as
    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    2. Ayadi, Rym & Arbak, Emrah & Ben-Naceur, Sami & De Groen, Willem Pieter, 2013. "Financial Development, Bank Efficiency and Economic Growth across the Mediterranean," CEPS Papers 7832, Centre for European Policy Studies.
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    Citations

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    Cited by:

    1. Nawaz, Kishwar & Lahiani, Amine & Roubaud, David, 2019. "Natural resources as blessings and finance-growth nexus: A bootstrap ARDL approach in an emerging economy," Resources Policy, Elsevier, vol. 60(C), pages 277-287.
    2. Shahbaz, Muhammad & Shahzad, Syed Jawad Hussain & Ahmad, Nawaz & Alam, Shaista, 2016. "Financial development and environmental quality: The way forward," Energy Policy, Elsevier, vol. 98(C), pages 353-364.
    3. Halkos, George & Polemis, Michael, 2016. "Examining the impact of financial development on the environmental Kuznets curve hypothesis," MPRA Paper 75368, University Library of Munich, Germany.
    4. Iftikhar Yasin & Nawaz Ahmad & Muhammad Aslam Chaudhary, 2021. "The impact of financial development, political institutions, and urbanization on environmental degradation: evidence from 59 less-developed economies," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(5), pages 6698-6721, May.
    5. Md. Qamruzzaman & Wei Jianguo, 2017. "Financial innovation and economic growth in Bangladesh," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-24, December.
    6. Iftikhar Yasin & Nawaz Ahmad & M. Aslam Chaudhary, 2020. "Catechizing the Environmental-Impression of Urbanization, Financial Development, and Political Institutions: A Circumstance of Ecological Footprints in 110 Developed and Less-Developed Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 147(2), pages 621-649, January.
    7. George E. Halkos & Michael L. Polemis, 2017. "Does Financial Development Affect Environmental Degradation? Evidence from the OECD Countries," Business Strategy and the Environment, Wiley Blackwell, vol. 26(8), pages 1162-1180, December.

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    More about this item

    Keywords

    Financial Development; Economic Growth; Financial Reforms; Granger Causality;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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