Financial development and economic growth: evidence from sub-Saharan Africa

The connection between financial development and economic growth is yet a disconcerted topic, and the discussion keeps on fascinating the consideration of policymakers. To add to the continuous discussion on financial development and economic growth nexus this study tries to empirically investigate the short and long-term impacts of financial development on economic growth in some chose nations in Sub-Saharan Africa (SSA). To bring out the short and long run features, the study shaped an aggregate variable of financial development dependent on four key proportions of financial development through the Principal Component Analysis. To this end, the Autoregressive distributed lag model (ARDL), which allows the examination of both the short and long- run impacts of financial development on economic growth for a panel of twenty three nations in SSA covering a time of forty eight years from 1970 to 2017 is utilized. The outcomes from the Pooled Mean Group (PMG) estimator show that in the case of Sub-Saharan African countries, a positive and significant impact of financial development on economic growth is proved over the long run, however the impact is negative in the short-run. Concerning the CFA countries, the findings uncover that over the long-run financial development and economic growth are decidedly and entirely related, whereas a significant negative relationship is recorded in the short-run. In the NCFA nations, the investigation establishes that regardless of the timeframe, financial development impacts economic growth positively. The causality test result shows that the demand-following hypothesis is predominant in the chosen Sub-Saharan Africa nations, that is financial development is caused by economic growth in SSA. To accomplish convenient long-run economic growth in Sub-Saharan Africa, the study proposes the execution and quickening of effective financial sector reforms and implementation of growth-oriented policies that would boost financial sector by policymakers. Keywords: ARDL, CFA, Financial Development, Economic Growth, NCFA, Sub-Saharan Africa, Pooled Mean Group Estimator.