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The finance‐growth nexus in Sub‐Saharan Africa: Panel cointegration and causality tests

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  • Babajide Fowowe

Abstract

This paper examines the causal relationship between financial development and economic growth using data for 17 countries in Sub-Saharan Africa. The analysis is conducted using panel cointegration and causality tests which take account of heterogeneity between countries which arises as a result of different country intercepts and varying regression coefficients slopes across countries. The results show that there is homogenous bi‐directional causality between financial development and economic growth. This result is robust to alternative measures of financial development and implies that for these Sub‐Saharan African countries, both the real and financial sectors are complementary to each other and their simultaneous development should be encouraged. Copyright (C) 2010 John Wiley & Sons, Ltd.

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  • Babajide Fowowe, 2011. "The finance‐growth nexus in Sub‐Saharan Africa: Panel cointegration and causality tests," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(2), pages 220-239, March.
    • Handle: RePEc:wly:jintdv:v:23:y:2011:i:2:p:220-239
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    File URL: http://hdl.handle.net/10.1002/jid.1660
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    2. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    3. Yabibal M. Walle, 2014. "Revisiting the Finance–Growth Nexus in Sub‐Saharan Africa: Results from Error Correction‐based Panel Cointegration Tests," African Development Review, African Development Bank, vol. 26(2), pages 310-321, June.
    4. Inoue, Takeshi & Hamori, Shigeyuki, 2013. "Financial Permeation and Economic Growth: Evidence from Sub-Saharan Africa," MPRA Paper 53417, University Library of Munich, Germany.
    5. Raghutla CHANDRASHEKAR & T. SAMPATH & Krishna Reddy CHITTEDI, 2018. "Financial development, trade openness and growth in India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(614), S), pages 113-124, Spring.
    6. Olufemi Adewale Aluko & Olufemi Patrick Adeyeye & Patrick Olajide Oladele, 2020. "Finance–growth nexus in sub-Saharan Africa revisited: evidence based on a new composite index," Economic Change and Restructuring, Springer, vol. 53(2), pages 333-355, May.
    7. Muhammad Halilintar, 2018. "Cooperatives and Economic Growth in Indonesia," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 611-622.
    8. Donou-Adonsou, Ficawoyi & Sylwester, Kevin, 2017. "Growth effect of banks and microfinance: Evidence from developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 44-56.
    9. Yana Petrova, 2020. "On cointegration between the insurance market and economic activity," Empirical Economics, Springer, vol. 59(3), pages 1127-1138, September.
    10. Kumar, Ronald Ravinesh & Stauvermann, Peter Josef & Loganathan, Nanthakumar & Kumar, Radika Devi, 2015. "Exploring the role of energy, trade and financial development in explaining economic growth in South Africa: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1300-1311.
    11. Jagadish Prasad Bist, 2018. "Financial development and economic growth: Evidence from a panel of 16 African and non-African low-income countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1449780-144, January.
    12. Uslu, Çağrı Levent & Aydoğan, Ebru Tomris & Ketenci, Natalya, 2015. "Economic Growth, Financial Development, and Trade Openness in Emerging Markets: Panel Approach," MPRA Paper 64722, University Library of Munich, Germany.
    13. Edeh, Jude N. & Acedo, Francisco J., 2021. "External supports, innovation efforts and productivity: Estimation of a CDM model for small firms in developing countries," Technological Forecasting and Social Change, Elsevier, vol. 173(C).

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    More about this item

    Keywords

    financial development ; economic growth ; panel cointegration ; panel causality ; O16; O23; E44; G18; G28 ;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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