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The finance‐growth nexus in Sub‐Saharan Africa: Panel cointegration and causality tests

  • Babajide Fowowe
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    This paper examines the causal relationship between financial development and economic growth using data for 17 countries in Sub-Saharan Africa. The analysis is conducted using panel cointegration and causality tests which take account of heterogeneity between countries which arises as a result of different country intercepts and varying regression coefficients slopes across countries. The results show that there is homogenous bi‐directional causality between financial development and economic growth. This result is robust to alternative measures of financial development and implies that for these Sub‐Saharan African countries, both the real and financial sectors are complementary to each other and their simultaneous development should be encouraged. Copyright (C) 2010 John Wiley & Sons, Ltd.

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    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 23 (2011)
    Issue (Month): 2 (March)
    Pages: 220-239

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    Handle: RePEc:wly:jintdv:v:23:y:2011:i:2:p:220-239
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    1. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
    2. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
    3. Reinhart, Carmen & Tokatlidis, Ioannis, 2000. "Financial Liberalization: The African Experience," MPRA Paper 13423, University Library of Munich, Germany.
    4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    5. Elsa V. Artadi & Xavier Sala-i-Martín, 2003. "The economic tragedy of the XXth Century: Growth in Africa," Economics Working Papers 684, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
    7. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    8. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
    9. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
    10. Oriana Bandiera & Gerard Caprio Jr. & Patrick Honohan & Fabio Schiantarelli, 1998. "Does Financial Reform Raise or Reduce Savings?," Boston College Working Papers in Economics 413, Boston College Department of Economics.
    11. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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