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Financial Development and Economic Growth in Tanzania: A Dynamic Casualty Test

Author

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  • Nicholas Odhiambo

    (University of Fort Hare)

Abstract

This study investigates empirically the role of financial development on economic growth in Tanzania. Unlike many previous studies, the study uses three proxies of financial development against real GDP per capita (a proxy for economic growth). Using the Johansen-Juselius cointegration method and vector error-correction mechanism, the empirical results of this study, taken together, reveal a bidirectional casuality between financial development and economic growth in Tanzania - although a supply-leading response tends to predominate. When the ratio of broad money to GDP (M2/GDP) is used, a distinct supply-leading response is found to prevail. However, when the ratio of currency to narrow definition of money (CC/M1) and the ratio of bank claims on the private sector to GDP (DCP/GDP) are used, a bi-directional causality evidence seems to prevail. The study therefore recommends that the current financial development in Tanzania be developed further in order to make the economy more monetised.

Suggested Citation

  • Nicholas Odhiambo, 2005. "Financial Development and Economic Growth in Tanzania: A Dynamic Casualty Test," The African Finance Journal, Africagrowth Institute, vol. 7(1), pages 1-17.
    • Handle: RePEc:afj:journl:v:7:y:2005:i:1:p:1-17
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    Cited by:

    1. Sulaiman, Saidu & Masih, Mansur, 2017. "Is liberalizing finance the game in town for Nigeria ?," MPRA Paper 95569, University Library of Munich, Germany.
    2. Akinlo A. Enisan & Sharimakin Akinwumi, 2019. "Financial Inclusion in Ondo State, Nigeria: Determinants and Its Impact on Poverty," Review of Market Integration, India Development Foundation, vol. 11(3), pages 151-175, December.
    3. Ono, Shigeki, 2017. "Financial development and economic growth nexus in Russia," Russian Journal of Economics, Elsevier, vol. 3(3), pages 321-332.
    4. 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.
    5. Abel Mawuko Agoba & Joshua Yindenaba Abor & Kofi Achampong Osei & Jarjisu Sa-Aadu, 2020. "The Independence of Central Banks, Political Institutional Quality and Financial Sector Development in Africa," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(2), pages 154-188, August.
    6. Diby Francois Kassi & Yao Li & Zhankui Dong, 2023. "The mitigating effect of governance quality on the finance‐renewable energy‐growth nexus: Some international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 316-354, January.
    7. Ebru TOPCU Author- Workplace-Name: Nevsehir Haci Bektas Veli University, Department of Economics, Turkey, 2016. "Reexamining Finance-Growth Nexus: A New Literature Survey," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(Special I), pages 1-7, august.
    8. Najeeb Muhammad Nasir & Nasir Ali & Imran Khokhar, 2014. "Economic Growth, Financial Depth and Lending Rate Nexus: A Case of Oil Dependant Economy," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(2), pages 59-68, April.
    9. Nyasha, Sheilla & Gwenhure, Yvonne & Odhiambo, Nicholas M., 2017. "The Dynamic Causal Linkage Between Financial Development And Economic Growth: Empirical Evidence From Ethiopia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(1), pages 73-102.
    10. Balcilar, Mehmet & Gupta, Rangan & Lee, Chien-Chiang & Olasehinde-Williams, Godwin, 2018. "The synergistic effect of insurance and banking sector activities on economic growth in Africa," Economic Systems, Elsevier, vol. 42(4), pages 637-648.
    11. Akinci, Gönül Yüce & Akinci, Merter & Yilmaz, Ömer, 2014. "Financial Development-Economic Growth Nexus : A Panel Data Analysis Upon Oecd Countries," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(1), pages 33-50, June.
    12. Andrew Phiri, 2015. "Asymmetric cointegration and causality effects between financial development and economic growth in South Africa," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(4), pages 464-484, October.
    13. Simplice A, Asongu, 2012. "Linkages between investment flows and financial development: causality evidence from selected African countries," MPRA Paper 38719, University Library of Munich, Germany.
    14. Xuezhi Qin & Benson Otieno Ndiege, 2013. "Role of Financial Development in Economic Growth: Evidence from Savings and Credits Cooperative Societies in Tanzania," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(2), pages 115-125, April.
    15. Rebecca Attah-Annor & Alhassan Bunyaminu, 2016. "Effect of Stock Market Dynamics on Economic Growth: Evidence from Ghana Stock Exchange," International Journal of Financial Markets, Research Academy of Social Sciences, vol. 2(3), pages 69-93.
    16. Eita, Joel Hinaunye, 2009. "The finance-growth nexus in Namibia," MPRA Paper 78418, University Library of Munich, Germany.

    More about this item

    Keywords

    Africa; Tanzania; Financial Development; Economic Growth;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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