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

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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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    Citations

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    Cited by:

    1. Simplice A. Asongu, 2014. "Linkages between investment flows and financial development: Causality evidence from selected African countries," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 5(3), pages 269-299, August.
    2. 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.
    3. 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.
    4. repec:rss:jnljfm:v2i3p3 is not listed on IDEAS
    5. Eita, Joel Hinaunye, 2009. "The finance-growth nexus in Namibia," MPRA Paper 78418, University Library of Munich, Germany.
    6. 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, vol. 32(4), pages 464-484, October.
    7. repec:eee:rujoec:v:3:y:2017:i:3:p:321-332 is not listed on IDEAS
    8. 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.
    9. 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.

    More about this item

    Keywords

    Africa; Tanzania; Financial Development; Economic Growth;

    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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