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Between Finance and Growth: The Role of Financial Development in Promoting Economic growth in Africa

Author

Listed:
  • Boulenouar Ilias Zakaria Mennad

    (Laboratory of Strategies for Development of the Agricultural and Tourism Sector, University of Ain Temouchent, Algeria)

  • Anes Meskini

    (Laboratory of Strategies for Development of the Agricultural and Tourism Sector, University of Ain Temouchent, Algeria)

  • Amina Benhaddou

    (Laboratory of Markets, Employment, Simulation and Legislation in the Maghreb Countries, University of Ain Temouchent, Algeria)

Abstract

Purpose: This study investigates the impact of financial development on economic growth, with a particular focus on the roles of financial institutions' access, depth, and efficiency. It aims to provide a nuanced analysis of the finance-growth nexus and evaluate whether financial development acts as a catalyst for or a constraint on economic growth within the African context. Design/Methodology/Approach: The study employs the Panel ARDL (Autoregressive Distributed Lag) approach to analyze the short-run and long-run effects of financial development on GDP. The analysis is conducted on a panel of 31 African countries over the period 1990–2021, capturing both cross-country variations and dynamic relationships between financial development indicators and economic growth. Findings: The findings emphasize that financial access and depth are key drivers of long-term economic growth, whereas financial efficiency exerts a negative impact. In the short run, financial access significantly enhances GDP, while financial depth may impede growth due to transitional costs or structural imbalances. Moreover, the heterogeneous short-run effects across countries underscore the pivotal role of institutional and economic factors in shaping the financial development and economic growth nexus. Practical Implications: Policymakers should prioritize financial inclusion and sector depth while addressing inefficiencies that may hinder economic performance. Strengthening regulatory frameworks and improving financial institutions’ operational effectiveness can foster sustainable economic growth. Originality/Value: This study provides new empirical evidence on the finance-growth nexus in African economies, considering multiple dimensions of financial development and utilizing a robust econometric approach (Panel ARDL). It contributes to the debate on financial development by distinguishing between access, depth, and efficiency. Paper Type: Research Paper.

Suggested Citation

  • Boulenouar Ilias Zakaria Mennad & Anes Meskini & Amina Benhaddou, 2025. "Between Finance and Growth: The Role of Financial Development in Promoting Economic growth in Africa," Finance, Accounting and Business Analysis, University of National and World Economy, Institute for Economics and Politics, vol. 7(1), pages 99-108, June.
    • Handle: RePEc:aan:journl:v:7:y:2025:i:1:p:99-108
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    References listed on IDEAS

    as
    1. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    2. Olufemi A. Aluko & Muazu Ibrahim, 2020. "Institutions and the financial development–economic growth nexus in sub‐Saharan Africa," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 49(3), September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financial development; Economic growth; Financial institutions; Panel ARDL; African countries.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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