Empirical Testing of the Relationship between Financial Development and Economic Growth in African Economies: A Panel Study

Abstract

The objective of this study is to present a set of essays on key financial development indicators and their impact on economic growth in African countries. We use panel data from 40 African countries (11 low-income countries and 29 middle-income countries) over the period 1980-2019. The results obtained with the application of regressions taking into account the fixed effects, show that financial development measured by bank credit to GDP (CSP(%GDP) and the ratio of money supply in the sense of M3 to GDP (M3/GDP), does not improve economic growth in African economies.

On the one hand, access to bank credit remains a problem for all African countries, and on the other hand, further reforming African financial systems based on financial inclusion would help promote economic growth on the continent.

Indeed, the realization of the crucial importance of an efficient and effective financial system in supporting and sustaining economic growth efforts has led all countries, developed and poor alike and regardless of their geographical location, to try to make the best use of it, taking care to adopt strategies and policies that they consider to be the most effective. This awareness is based on the assumption that as the financial sector develops, it can lead to real sector development.

The empirical evidence in our study also shows that poor key financial development indicators do not improve economic growth in African economies.

Ultimately, financial system development can only be an asset if the other determinants of economic growth are there and vice versa.

JEL Classification : C23, F43, O47

Type of paper : Applied research