Using various indicators of financial development, this paper investigates the role of financial intermediation in stimulating economic growth for members of the Southern African Development Community (SADC). The results lend some support to the hypothesis that financial development is positively correlated with the growth rate of real per capita GDP. This relationship is more evident in regressions that use pooled data (5-year cross sections) than those using annual data. This finding suggests that the finance-growth nexus is a long-run phenomenon. The data indicate that while Botswana and Mauritius are catching up with South Africa towards a high-income steady state, the rest of the countries are stagnating to low income levels and low growth rates.

Banking R. A lto n G ilb e rt D a v id C. W h e e lo c k International C h ristoph e r J . N e e ly M ic h a e l R. P a k k o P a tricia S. P o lla rd M acroeconom ics D o n a ld S. A lle n R ichard G . A n d e rso n Ja m es B. B u lla rd M ic h a e l J . D u e k e r Joseph A . R itter D a n ie l L. Th o rn to n P eter Yoo Regional M ic h e lle A . C la rk K e v in L. K liesen A d a m M . Z a re ts k y Director o f Editorial Services D a n ie l P. B re n nan Managing Editor

An alternative inventory model called ( S,s), suggests that firms with fixed costs of adjusting inventory will establish a maximum level of inventory (S), and a minimum level (s), and adjust only when inventory falls below the minimum [See Allen (1995) for a brief explanation of production smoothing and (S,s)]. The (S,s) model is less likely to have production varying less than sales. The purpose of this article is to test the production smoothing model only.

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Separating cyclical movement from trend growth at seasonal and business cycle frequencies is important to macroeconomic research. At business cycle frequencies, time trends, first differences and the more recent Hodrick-Prescott (HP) filter are used to separate trends from cycles. At seasonal frequencies, ad-hoc methods like the Census Bureau's X-11 seasonal filter are applied. This paper reviews the criteria for permanent cycles in systems characterized by difference equations and looks at the effect of filtering data which exhibit permanent cyclicality. Second order moving averages with complex unit roots at appropriate frequencies are used to filter data at seasonal and business cycle frequencies; and spectral analysis of the filtered data is used to illustrate the effect. The X-11 seasonal filter and the HP filter are also discussed in this framework. As with any filter that is applied to data where the data generating process is unknown, filtering for specific frequencies can induce cycles at harmonics of the fundamental frequency.