Impact of financial development on economic growth: Evidence from Sub‐Saharan Africa

Hui An, Qianmiao Zou and Mohamed Kargbo

Australian Economic Papers, 2021, vol. 60, issue 2, 226-260

Abstract: Many African countries have experienced episodes of weak growth since 1970 through the 2000s. A fundamental intermediation gap in Sub‐Saharan Africa (SSA) is the extremely limited financing for medium to long term lending facilities to promote growth. Thus, given the importance of financial development on economic growth, this study investigates the impact of financial development on economic growth in SSA, which is sub‐divided into low‐, middle‐ and upper‐income groupings to ascertain whether differences in income levels across countries affect the relative impact of finance on growth. The study adopts the dynamic and static panel data model to analyse 30 SSA countries using annual data over the 1985–2015 period. The findings indicate that financial depth and financial intermediation reduce per capita income growth in low‐ and middle‐income countries. However, it increases growth in upper‐income and the overall sample of SSA countries. Credit supply positively impacts growth in low‐income countries but exerts a significantly negative impact on growth in middle‐income and the overall sample of SSA countries. Financial liberalisation promotes growth in upper‐income and the overall SSA. However, it reduces growth in low‐ and middle‐income countries. Financial development and financial liberalisation are important factors that affect economic growth given different income levels.

Date: 2021
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https://doi.org/10.1111/1467-8454.12201

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Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecp:v:60:y:2021:i:2:p:226-260

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