South African Journal of Economic and Management Sciences, Vol 12, No 1 (2009)

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

Songul Kakilli Acaravci, Ilhan Ozturk, Ali Acaravci

Abstract


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.


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EISSN 2222-3436 (Online)