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Financial intermediation and economic growth in southern Africa

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  • Donald S. Allen
  • Leonce Ndikumana

Abstract

The role of the financial sector in stimulating economic growth has been debated in the economic profession for decades. The prevailing view is that financial intermediaries reduce the transactions costs of channeling funds from savers to entrepreneurs by reducing information asymmetries between lenders and borrowers, there by stimulating investment and growth. Inflation, on the other hand, increases uncertainty and has a negative impact on investment and reduces growth. This paper tests these two hypotheses empirically using a pooled time series for a cross-section of countries in the southern cone of Africa. The countries are members of the Southern African Development Community (SADC) integrated trade group. The empirical results suggest a positive correlation between the growth in the level of liquid liabilities ( as a proxy for financial depth) and economic growth, and also confirm the negative correlation between inflation and economic growth.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1998-004.

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Date of creation: 1998
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Handle: RePEc:fip:fedlwp:1998-004

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Keywords: Africa ; Economic development;

References

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Citations

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Cited by:
  1. Abdullahi D. Ahmed & Abu N.M. Wahid, 2011. "Financial structure and economic growth link in African countries: a panel cointegration analysis," Journal of Economic Studies, Emerald Group Publishing, vol. 38(3), pages 331-357, July.
  2. Gregory Price, 2008. "NEA Presidential Address: Black Economists of the World You Cite!!," The Review of Black Political Economy, Springer, vol. 35(1), pages 1-12, March.
  3. Thomas Gries & Manfred Kraft & Daniel Meierrieks, 2008. "Linkages between Financial Deepening,Trade Openness and Economic Development: Causality Evidence from Sub-Saharan Africa," Working Papers 15, University of Paderborn, CIE Center for International Economics.
  4. Alomar, Ibrahim, 2005. "الدور التنموي للمصارف والوسطاء الماليين
    [Develpmental Role of Banks and Financial Intermediaries]
    ," MPRA Paper 18798, University Library of Munich, Germany.
  5. Sylvanus Ikhide, 2003. "Was There a Credit Crunch in Namibia Between 1996-2000?," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 269-290, November.
  6. Enowbi Batuo, Michael & Mlambo, Kupukile, 2012. "Financial liberalisation, Banking Crises and Economic Growth in African Countries," MPRA Paper 41524, University Library of Munich, Germany.

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