scholarly journals The Finance Growth Link: Comparative Analysis Of Two Eastern African Countries

2016 ◽  
Vol 19 (3) ◽  
pp. 147-167 ◽  
Author(s):  
Ashenafi Beyene Fanta ◽  
Daniel Makina
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Financial Development ◽  
Low Income ◽  
Structural Breaks ◽  
Response Analysis ◽  
African Countries ◽  
Vector Autoregressive ◽  
Stock Market Development ◽  
Sub Saharan

This paper examines the finance growth link of two low-income Sub-Saharan African economies – Ethiopia and Kenya – which have different financial systems but are located in the same region. Unlike previous studies, we account for the role of non-bank financial intermediaries and formally model the effect of structural breaks caused by policy and market-induced economic events. We used the Vector Autoregressive model (VAR), conducted impulse response analysis and examined variance decomposition. We find that neither the level of financial intermediary development nor the level of stock market development explains economic growth in Kenya. For Ethiopia, which has no stock market, intermediary development is found to be driven by economic growth. Three important inferences can be made from these findings. First, the often reported positive link between finance and growth might be caused by the aggregation of countries at different stages of economic growth and financial development. Second, country-specific economic situations  and episodes are important in studying the relationship between financial development and economic growth. Third, there is the possibility that the econometric model employed to test the finance growth link plays a role in the empirical result, as we note that prior studies did not introduce control variables.

scholarly journals Finance-growth nexus in sub-Saharan Africa

2021 ◽  
Vol 24 (1) ◽  
Author(s):  
Celsa M.D.C. Machado ◽  
António F.M.G. Saraiva ◽  
Paulo D.D. Vieira
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Low Income ◽  
Developed Countries ◽  
Dynamic Panel Data ◽  
Policy Implications ◽  
Sub Saharan Africa ◽  
Empirical Literature ◽  
African Countries ◽  
Sub Saharan

Background: There is now significant empirical literature suggesting that finance is good for growth only up to a threshold level of financial development, becoming harmful after that level, in developed and developing countries.Aim: This study extends this literature that investigates non-linearities on the finance-growth link, by testing the inverted U-shape hypothesis in sub-Saharan African countries, which are among the least developed ones.Setting: 36 countries from sub-Saharan Africa over the period 1980–2015.Method: Estimation of quadratic dynamic panel data models by system-generalised method of moments.Results: Empirical results show that there is a hump-shaped relationship between financial development and economic growth in sub-Saharan African countries.Conclusion: Results suggest that the hypothesis of ‘too much finance harms economic growth’ also holds for low-income and less developed countries, but for much lower threshold levels of financial development than those of more developed and higher-income countries. As for policy implications, measures to strengthen finance quality and other growth-enhancing strategies need to be undertaken, rather than increasing finance size.

scholarly journals Financial development, openness in financial services trade and economic growth

2019 ◽  
Vol 3 (2) ◽  
pp. 42-65 ◽  
Author(s):  
Rabia Khatun ◽  
Jagadish Prasad Bist
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Financial Development ◽  
Financial Services ◽  
Banking Sector ◽  
Market Development ◽  
Services Trade ◽  
Content Type ◽  
Stock Market Development ◽  
Insurance Sector

Purpose The purpose of this paper is to examine the relationship between financial development, openness in financial services trade and economic growth in BRICS countries for the period 1990–2012. Design/methodology/approach An index for financial development has been constructed using principal component analysis technique by including banking sector development, stock market development, bond market development and insurance sector development. For the robustness of the result, the long-run cointegrating relationship amongst the variables has been analyzed. Findings Overall financial development has a positive and significant impact on economic growth. To take the full advantage of openness in financial services trade, countries need to put more emphasis on the development of their stock markets, bond markets and the insurance sector. The result shows that openness in financial services trade has a positive impact on economic growth when the stock market, bond market and insurance sector are included in the system. Research limitations/implications The policy implication of the findings is that policymakers should focus more on developing all four areas of finance to get the full benefit of the financial system on the process of economic growth. Originality/value The authors have constructed the better indicators of financial development in the case of BRICS economies. Most of the studies in BRICS economies have measured the development of the financial sector as either banking sector development or stock market development. However, the present study includes all four areas of finance (banking sector development, stock market development, insurance sector development and bond market development) into account.

scholarly journals The Causal Relationship Between China-Africa Trade, China OFDI, and Economic Growth of African Countries

SAGE Open ◽  
2021 ◽  
Vol 11 (4) ◽  
pp. 215824402110648
Author(s):  
Emma Serwaa Obobisa ◽  
Haibo Chen ◽  
Emmanuel Caesar Ayamba ◽  
Claudia Nyarko Mensah
Keyword(s):  
Economic Growth ◽  
Low Income ◽  
Negative Impact ◽  
Empirical Studies ◽  
Generalized Least Squares ◽  
Causal Link ◽  
Sub Saharan Africa ◽  
African Countries ◽  
Middle Income ◽  
Sub Saharan

Recently, China has emerged as the largest trading partner and a significant source of investment in the African continent. Although there is consent on the increasing importance of China and Africa’s economic partnership, there are many controversies on how it affects African countries. Debates on China in Africa have, however, relied on grandiloquence rather than empirical studies. This study explores the causal link between China-Africa trade, China’s outward foreign direct (OFDI), and economic growth of 24 Sub-Saharan Africa countries from 1999 to 2018. The aggregated panel is classified into upper-middle-income, low-middle income, and low-income Sub-Saharan African countries. In the long run, key findings from the feasible generalized least squares (FGLS) estimator unveiled that; (i) China-Africa trade negatively contributes to economic growth among all panels. (ii) China’s OFDI improves economic growth in the low middle and low-income African countries whereas a significant negative liaison is evidenced in the upper-middle-income African countries. (iii) Labor force have a negative impact on economic growth whiles gross capital formation is evidenced to positively impact economic growth at all the panels. The Dumitrescu and Hurlin Granger causality unveiled a one-sided causal link from China-Africa trade to economic growth at all panels. The study proposes policy recommendations based on the results.

scholarly journals Financial development and economic growth: literature survey and empirical evidence from sub-Saharan African countries

2011 ◽  
Vol 12 (1) ◽  
pp. 11-27 ◽  
Author(s):  
Songul Kakilli Acaravci ◽  
Ilhan Ozturk ◽  
Ali Acaravci
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Banking Sector ◽  
Sub Saharan Africa ◽  
African Countries ◽  
Real Gdp ◽  
Long Run ◽  
Domestic Credit ◽  
Real Gdp Per Capita ◽  
Sub Saharan

In this paper we review the literature on the finance-growth nexus and investigate the causality between financial development and economic growth in Sub-Saharan Africa for the period 1975-2005. Using panel co-integration and panel GMM estimation for causality, the results of the panel co-integration analysis provide evidence of no long-run relationship between financial development and economic growth. The empirical findings in the paper show a bi-directional causal relationship between the growth of real GDP per capita and the domestic credit provided by the banking sector for the panels of 24 Sub-Saharan African countries. The findings imply that African countries can accelerate their economic growth by improving their financial systems and vice versa.

scholarly journals Exploring the causality between economic growth, financial development and inflation in sixteen high-income countries

2021 ◽  
Vol 22 (45) ◽  
Author(s):  
José Alberto Fuinhas ◽  
Matheus Koengkan ◽  
Matheus Belucio
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Banking Sector ◽  
High Income ◽  
Market Development ◽  
Impulse Response Functions ◽  
Vector Autoregressive ◽  
Stock Market Development ◽  
Banking Sector Development ◽  
The Relationship

This paper examined the relationship between economic growth, inflation, stock market development, and banking sector development for a panel of sixteen high-income countries for the period from 2001 to 2016, by using the mechanism impulse response functions and Granger causality tests derived from a panel vector autoregressive model. The evidence of bidirectional causality between all variables in the model was found. Overall, feedback and supply-leading theories have been confirmed in the literature. A plus sign in the relationship between the development of the banking sector and the stock market with economic growth was found. Therefore, stock market development and banking sector development stimulate the economy.

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