Does Financial Development Hold the Key to Economic Growth?: The Case Of Sub-Saharan Africa


The paper investigates the relationship between financial development and economic growth in seven Sub-Saharan Africa countries. Using the panel Granger causality test, the study finds one-way causality running from economic growth to bank developing indicators and a two-way causality between stock market development indicators and economic growth. The fixed-effects estimation shows stock market development has positive and significant effect on economic growth while banking development indicators impact on economic growth is uncertain. Control variables including capital formation, schooling, and life expectancy have positive effect on economic growth. Based on these findings, the study suggests for adoption of policies that create favorable environment for financial market development including efforts to integrate the small capital markets.