The Nexus of Financial Sector Development and Economic Development in Zimbabwe: 1980-2022

Lawrence Dumisani Nyathi and Wilfred Petegumbo
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Lawrence Dumisani Nyathi: National University of Science and Technology, Lecturer-Department of Banking & Economic Sciences, Faculty of Business & Economic Sciences, Zimbabwe.
Wilfred Petegumbo: National University of Science and Technology, Graduating Candidate-Department of Banking & Economic Sciences, Faculty of Business & Economic Sciences, Zimbabwe.

International Journal of Research and Scientific Innovation, 2024, vol. 11, issue 9, 860-871

Abstract: Economic literature has shown that financial development has a positive effect on economic growth. Since 1980, the financial sector has faced numerous challenges albeit the importance of the sector towards economic development. This study examines the nexus between financial sector development and economic development. The study data covered the period 1980-2022 using an econometric analysis applying the Autoregressive Distributed Lag (ARDL) regression model to assess the relationship between finance sector development and economic development. The research findings indicate that bank deposits have a statistically negative effect on economic development. Broad money (M2) is statistically significant beneficial effect on economic development over long term. The results also reveal that in the long run government spending has a negative effect on economic development. Long term economic development was negatively correlated with private investment. In conclusion, ther study underscores the need to address strengthen the financial sector so as to enable economic development. Therefore, the paper recommends that the government of Zimbabwe should effectively enact policies that promote trade liberalisation, job creation and similar pursuits in order to stimulate development in turn strengthen the financial sector.

Date: 2024
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