Financial structure and economic growth link in African countries: a panel cointegration analysis
AbstractPurpose – This paper aims to use the newly developed panel data cointegration analysis and the dynamic time series modeling approach to examine the linkages between financial structure (market-based vs bank-based) and economic growth in African economies. Design/methodology/approach – The research investigates the dynamic relationship between financial structure and economic growth in a panel of a group of seven African developing countries over the period of 1986-2007. The paper uses various indicators/measures of financial structure and financial system, and employs the traditional time-series analysis for causality as well as the newly developed panel unit root and cointegration techniques and estimated finance-growth relationship using FMOLS for heterogeneous panel. Findings – From the dynamic heterogeneous panel approach, the paper firstly finds that market-based financial system is important for explaining output growth through enhancing efficiency and productivity. Second, the authors' empirical evidence supports the view that higher levels of banking system development are positively associated with capital accumulation growth and lead to faster rates of economic growth. Originality/value – Panel cointegration, group mean panel FMOLS and country-by-country time series investigations indicate that the market-based financial system is important for explaining output growth through enhancing efficiency and productivity, whereas the development of banking system is significantly associated with capital accumulation growth. Further results from the time-series approach show evidence of unidirectional causality running from market-oriented as well as bank-oriented financial systems to economic growth.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 38 (2011)
Issue (Month): 3 (July)
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Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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- Kurt A. Hafner & David Mayer-Foulkes, 2012.
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DEGIT Conference Papers
c017_024, DEGIT, Dynamics, Economic Growth, and International Trade.
- Hafner, Kurt A. & Mayer-Foulkes, David, 2013. "Fertility, economic growth, and human development causal determinants of the developed lifestyle," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 107-120.
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