Revisiting the finance–growth nexus in Sub-Saharan Africa: results from error correction-based panel cointegration tests

Walle, Yabibal
External Publications (2014)

in: African Development Review 26 (2), 310-321

DOI: 10.1111/1467-8268.12083

This paper re-examines the long-run finance-growth nexus in sub-Saharan Africa (SSA) using data from 17 countries over the period 1975–2005. We apply error correction-based panel cointegration tests that take into account cross-sectional dependence among countries. Our results - unlike a previous study using the same data - indicate the existence of a long-run relationship between financial and economic development in SSA countries. Moreover, our results clearly show that the long-run causality runs from financial to economic development, although a muted support for the reverse causal impact is observed when financial development is measured by the percentage of liquid liabilities in GDP. The estimated long-run parameters measuring the finance–growth link are positive and statistically significant. Therefore, our results strongly support policies aimed at developing the financial sector in SSA in order to promote long-run economic development.

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