African Development Review · 2004 · 263 citations · 52 references
Social SciencesEconomicsEconometricsEconomic DevelopmentMacroeconomicsCointegration AnalysisEconomic GrowthFinancial DevelopmentFinancial Time Series AnalysisTime Series EconometricsCausal RelationshipsCausalityCointegration In Macroeconomic VariablesEconomic Growth DynamicsFinancial Sector DevelopmentLong-run CausalityVector Autoregression
The study empirically investigates the causal relationship between financial development and economic growth in 13 sub‑Saharan African countries. A vector autoregression framework with cointegration and error‑correction models is employed to analyze the data. Cointegration analysis shows a long‑run relationship between financial development and growth in 12 of 13 countries, with financial development driving growth in 8 and bidirectional causality in 6, indicating that strengthening financial systems can accelerate African economies.
Abstract: This paper seeks to empirically explore the causal link between the level of financial development and economic growth in 13 sub‐Saharan African countries. The empirical investigation is carried out in a vector autoregression (VAR) framework based on the theory of cointegration and error‐correction representation of cointegrated variables. The results of the cointegration analysis provide evidence of the existence of a long‐run relationship between financial development and economic growth in almost all (12 out of 13) of the countries. With respect to the direction of long‐term causality, the results show that financial development plays a causal role on economic growth, again in eight of the countries. At the same time, evidence of bidirectional causal relationships is found in six countries. The findings imply that African countries can accelerate their economic growth by improving their financial systems.
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