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Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa

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  • Gries, Thomas
  • Kraft, Manfred
  • Meierrieks, Daniel

Abstract

Summary This contribution tests for causality between financial deepening, trade openness, and economic development for 16 sub-Saharan African countries. The Hsiao-Granger method is used to add to the existing empirical evidence. Only limited support is found for the popular hypothesis of finance-led growth. In general, the evidence indicates that financial deepening and trade openness have swayed economic development rather marginally. In particular, the investigated countries have failed to benefit from financial deepening. Development strategies prioritizing financial or trade sector development hence cannot be supported.

Suggested Citation

  • Gries, Thomas & Kraft, Manfred & Meierrieks, Daniel, 2009. "Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 37(12), pages 1849-1860, December.
    • Handle: RePEc:eee:wdevel:v:37:y:2009:i:12:p:1849-1860
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    More about this item

    Keywords

    financial markets economic growth openness Hsiao's Granger causality Sub-Saharan Africa South Africa;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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