Economics at your fingertips  

Economic Growth and Financial Sector Development: Long-Run Structural Break Cointegration and Short-Run Equilibrium Relationships in the East African Community

Muwanga Sebunya Gertrude ()

International Journal of Applied Economics, Finance and Accounting, 2021, vol. 9, issue 2, 48-62

Abstract: The EAC countries in a bid to boost economic growth (RGDP) and reduce poverty in the region, implemented several financial sector reforms, however, empirical findings have indicated that financial development (FSD) can have a positive, negative or no effect on economic growth. This study investigated this relationship for four EAC countries including Uganda, Kenya, Burundi and Rwanda using individual country Gregory-Hansen-Quandt-Andrews-Muwanga (GHQAM) cointegration procedure based on OLS/ FMOLS estimations. The findings indicate that in the long-run: i). a cointegration relationship exists between financial development and economic growth but it has not been stable for the periods covered; and ii). the elasticity of economic growth to financial development was zero before and after the break for Uganda and Burundi but ranged between 0.000 - 0.3208 and between 0.2178 - 0.3063 for Kenya and Rwanda, respectively, implying an inelastic relationship for all four countries. In the short-run, RGDP did not adjust to changes in FSD in Burundi while 46.36%, 46.3% and 40.67% to 67.47% of the adjustment of the former to changes in the later occurred in the short-run in Rwanda, Uganda and Kenya, respectively. These results signal the need to review and enhance the transmission mechanisms through which financial development affects economic growth and put in place a favourable environment to ensure positive and elastic effects on economic growth.

Keywords: Regime shifts; Economic growth; Financial development; Elasticity; Cointegration. (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in International Journal of Applied Economics, Finance and Accounting from Online Academic Press
Bibliographic data for series maintained by Heather Rothman ().

Page updated 2022-05-22
Handle: RePEc:oap:ijaefa:v:9:y:2021:i:2:p:48-62:id:380