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Re-Examining The Finance-Growth Nexus: Structural Break, Threshold Cointegration And Causality Evidence From The Ecowas

  • Loesse Jacques Esso

    ()

    (Ecole Nationale Superieure de Statistique et d Economie Appliquee)

The aim of this paper is to re-examine the cointegrating and causal relationship between financial development and economic growth in the ECOWAS. To this end, we use the Gregory and Hansen (1996a, 1996b) approach to cointegration with structural change and the procedure for non-causality test of Toda and Yamamoto (1995). Data are from the World Bank (2007) and cover the period 1960-2005. We show that there is a long-run relationship between financial development and economic growth in six countries, namely, Burkina Faso, Cape Verde, Cote d¡¯Ivoire, Ghana, Liberia and Sierra Leone. In addition, we show that financial development ¡®leads¡¯ economic growth in Ghana and Mali while growth causes finance in Burkina Faso, Cote d'Ivoire and Sierra Leone, and a bidirectional causality in Cape Verde and Liberia. The policy implication is that Cape Verde, Ghana and Mali should give policy priority to financial reform while Burkina Faso, Cote d¡¯Ivoire and Sierra Leone should promote economic growth.

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Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 35 (2010)
Issue (Month): 3 (September)
Pages: 57-79

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Handle: RePEc:jed:journl:v:35:y:2010:i:3:p:57-79
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  1. Yamada, Hiroshi, 1998. "A note on the causality between export and productivity:: an empirical re-examination," Economics Letters, Elsevier, vol. 61(1), pages 111-114, October.
  2. Reinhart, Carmen & Tokatlidis, Ioannis, 2005. "Before and After Financial Liberalization," MPRA Paper 6986, University Library of Munich, Germany.
  3. Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
  4. Enders, Walter & Falk, Barry, 1998. "Threshold-autoregressive, median-unbiased, and cointegration tests of purchasing power parity," International Journal of Forecasting, Elsevier, vol. 14(2), pages 171-186, June.
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  7. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
  8. Phillips, Peter C.B. & Toda, Hiro Y., 1993. "Limit Theory in Cointegrated Vector Autoregressions," Econometric Theory, Cambridge University Press, vol. 9(01), pages 150-153, January.
  9. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, December.
  10. Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, vol. 89(2), pages 285-296, July.
  11. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
  12. Augustin Kwasi Fosu & Mwangi S. Kimenyi & Njuguna S. Ndung'u, 2003. "Economic Reforms and Restructuring in Sub-Saharan Africa: An Overview," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 1-11, September.
  13. Gregory, Allan W. & Nason, James M. & Watt, David G., 1996. "Testing for structural breaks in cointegrated relationships," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 321-341.
  14. Andrade, Philippe & Bruneau, Catherine & Gregoir, Stephane, 2005. "Testing for the cointegration rank when some cointegrating directions are changing," Journal of Econometrics, Elsevier, vol. 124(2), pages 269-310, February.
  15. Allan W. Gregory & James M. Nason, 1991. "Testing for Structural Breaks," Working Papers 827, Queen's University, Department of Economics.
  16. Ahlin, Christian & Pang, Jiaren, 2008. "Are financial development and corruption control substitutes in promoting growth?," Journal of Development Economics, Elsevier, vol. 86(2), pages 414-433, June.
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