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Financial structure and economic growth link in African countries: a panel cointegration analysis


  • Abdullahi D. Ahmed
  • Abu N.M. Wahid


Purpose - This paper aims to use the newly developed panel data cointegration analysis and the dynamic time series modeling approach to examine the linkages between financial structure (market-based vs bank-based) and economic growth in African economies. Design/methodology/approach - The research investigates the dynamic relationship between financial structure and economic growth in a panel of a group of seven African developing countries over the period of 1986-2007. The paper uses various indicators/measures of financial structure and financial system, and employs the traditional time-series analysis for causality as well as the newly developed panel unit root and cointegration techniques and estimated finance-growth relationship using FMOLS for heterogeneous panel. Findings - From the dynamic heterogeneous panel approach, the paper firstly finds that market-based financial system is important for explaining output growth through enhancing efficiency and productivity. Second, the authors' empirical evidence supports the view that higher levels of banking system development are positively associated with capital accumulation growth and lead to faster rates of economic growth. Originality/value - Panel cointegration, group mean panel FMOLS and country-by-country time series investigations indicate that the market-based financial system is important for explaining output growth through enhancing efficiency and productivity, whereas the development of banking system is significantly associated with capital accumulation growth. Further results from the time-series approach show evidence of unidirectional causality running from market-oriented as well as bank-oriented financial systems to economic growth.

Suggested Citation

  • 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, August.
  • Handle: RePEc:eme:jespps:v:38:y:2011:i:3:p:331-357

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    Cited by:

    1. Hafner, Kurt A. & Mayer-Foulkes, David, 2013. "Fertility, economic growth, and human development causal determinants of the developed lifestyle," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 107-120.
    2. Sibusiso Clement Makaringe & Hlalefang Khobai, 2018. "The effect of unemployment on economic growth in South Africa (1994-2016)," Working Papers 1815, Department of Economics, Nelson Mandela University, revised Mar 2018.
    3. 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.
    4. Nyasha, Sheilla & Gwenhure, Yvonne & Odhiambo, Nicholas M, 2016. "Financial development and economic growth in Ethiopia: a dynamic causal linkage," Working Papers 20160, University of South Africa, Department of Economics.
    5. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    6. Kumar, Ronald Ravinesh & Stauvermann, Peter Josef & Loganathan, Nanthakumar & Kumar, Radika Devi, 2015. "Exploring the role of energy, trade and financial development in explaining economic growth in South Africa: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1300-1311.
    7. Ahmed, Abdullahi D. & Mmolainyane, Kelesego K., 2014. "Financial integration, capital market development and economic performance: Empirical evidence from Botswana," Economic Modelling, Elsevier, vol. 42(C), pages 1-14.


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