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Investigating the Banking Sector Development Transmission Mechanism of Financial Development to Growth: Evidence from Sub-Saharan Africa (SSA)

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  • Tochukwu Timothy Okoli
  • Ajibola Rhoda Oluwafisayomi

Abstract

The search for financial development’s transmission channel to growth has always been updated in the literature. While there has not been a consensus on this matter, empirical findings on finance-growth nexus have been ambiguous. Relying on this, we investigate its bank development transmission channel to growth in a panel of twenty-eight Sub-Saharan Africa (SSA) countries from 2000-2016. Having adopted the augmented Solow (1956) and Mankiw et al. (1992) growth model, the fixed effect and dynamic system GMM estimation techniques reveals a negative non-significant and positive significant direct impact of finance on growth in the static and dynamic models respectively, thereby suggesting institutional (dynamic) factors that can spur finance. Secondly, the non-linear effects of bank development had a direct positive significant impact on growth and its marginal-effects before and after the financial crisis of 2007/08 were relatively stable. This implies that banks in SSA were relatively stable in financial intermediation; therefore SSA countries need to reinforce and improve its banking policy through FinTechs adoption. Finally, the interaction between bank development and financial development significantly increase steady-state growth. This implies that SSA economies can promote steady-state growth from financial development only when a threshold of bank development is reached.

Suggested Citation

  • Tochukwu Timothy Okoli & Ajibola Rhoda Oluwafisayomi, 2019. "Investigating the Banking Sector Development Transmission Mechanism of Financial Development to Growth: Evidence from Sub-Saharan Africa (SSA)," Journal of Economics and Behavioral Studies, AMH International, vol. 11(2), pages 120-131.
    • Handle: RePEc:rnd:arjebs:v:11:y:2019:i:2:p:120-131
    DOI: 10.22610/jebs.v11i2(J).2827
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