Journal of Economics Theory

Year: 2010
Volume: 4
Issue: 2
Page No. 50 - 58

An Empirical Analysis of Causality Between Financial Development Economic Growth: Further Evidence from Sub-Saharan Africa

Authors : T. Egbetunde and H.I. Mobolaji

Abstract: The study examines the long run and causal relationship between financial development and economic growth for ten countries in sub-Saharan Africa. Using the Vector Error Correction Model (VECM), the study finds that financial development is co-integrated with economic growth in all selected ten countries in Sub-Saharan Africa. Moreover, this test supports the estimated coefficient of the error correction terms found statistically significant with a negative sign which confirmed that there was not any problem in long run equilibrium between financial development and economic growth in the countries. Granger causality based on multivariate VECM further shows that financial development Granger causes economic growth in Burundi, Cameroon, Mali and Nigeria while economic growth Granger causes financial development in Benin, Burkina Faso, Madagascar and Malawi. Within the same framework, the evidence of bidirectional causality shows between financial development and economic growth in Cote d'Ivoire and Ghana. Based on these results, the study argues that financial development could help promote economic growth in four countries while economic growth could help promote financial development in four countries and financial development and economic growth promote one another in 2 countries. However, to achieve these goals, financial markets need to be further developed through appropriate regulatory and macroeconomic policies which in turn accelerate economic growth in Sub-Saharan Africa.

How to cite this article:

T. Egbetunde and H.I. Mobolaji, 2010. An Empirical Analysis of Causality Between Financial Development Economic Growth: Further Evidence from Sub-Saharan Africa. Journal of Economics Theory, 4: 50-58.

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