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Revisiting the Finance–Growth Nexus in Sub‐Saharan Africa: Results from Error Correction‐based Panel Cointegration Tests
Author(s) -
Walle Yabibal M.
Publication year - 2014
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12083
Subject(s) - cointegration , nexus (standard) , economics , causality (physics) , error correction model , order (exchange) , panel data , econometrics , short run , macroeconomics , developing country , finance , economic growth , physics , quantum mechanics , computer science , embedded system
Abstract 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.