Revisiting the Finance–Growth Nexus in Sub‐Saharan Africa: Results from Error Correction‐based Panel Cointegration Tests

This paper compares the impact of financial development on economic growth in the Union Économique et Monetaire Ouest Africaine (UEMOA) and non-UEMOA countries. It also examines the finance-growth nexus before and after the formation of UEMOA, as well as the indirect effect of economic union on economic growth through the financial sector. The study reveals a significant difference in the finance-growth nexus between UEMOA and non-UEMOA countries. Specifically, financial development has a robust positive impact on growth in UEMOA countries, while the impact is tenuous in non-UEMOA countries. However, we find no remarkable difference in the finance-growth nexus before and after the formation of UEMOA. We also reveal that economic union has no robust indirect effect on economic growth via the financial sector. The economic implication is that UEMOA could have economic benefits, but financial development is not a channel through which it influences growth. Therefore, it is necessary to reposition the union so that it can enhance the impact of finance on growth.

Section: Resultssupporting

confidence: 92%

Economic Union, Finance and Growth: A Prognosis in West Africa

Ehigiamusoe¹

2019

“…Although a large amount of literature has examined the impact of financial development along various dimensions of economic development, namely: inequality (De Haan & Sturm, 2017), poverty reduction (Uddin, Shahbaz, Arouri, & Teulon, 2014; Abosedra, Shahbaz, & Nawaz, 2016), productivity (Moretti, 2014), innovation (Ferreira, Manso, & Silva, 2012), and most importantly economic growth (Ghirmay, 2004; Kouki, 2013; Walle, 2014), not too many studies focus on the link between financial development and the informal economy. Theoretically, financial development might affect the informal economy through several channels.…”

Section: Introductionmentioning

confidence: 99%

Does financial development reduce the size of the informal economy in sub‐Saharan African countries?

Njangang

Nembot

Ngameni

2020

This paper contributes to the understanding of the other neglected effects of financial development by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 Sub Saharan African countries over the period 1991-2015. Empirical evidence is based on Ordinary Least Squared, Fixed effects and system Generalized Method of moment. The results show that financial development measured by broad money and domestic credit to private sector have a negative and statistically significant effect on the informal economy. This clearly suggests that financial development reduces the size of the informal economy.

“…Financial sector development has long been recognized as one of the key drivers of economic growth (Ghirmay, ; Beck and Hesse, ; Kouki, ; Walle, ). Financial innovations have been a major driver of financial inclusion and financial sector development (Demirguc‐Kunt et al ., ).…”

Section: Introductionmentioning

confidence: 99%

Financial Innovations and Money Velocity in Uganda

Nampewo¹,

Opolot²

2016

This paper investigates the impact of financial innovations on the stability of money velocity. The paper contributes to the existing literature in three ways; first, we develop a simple analytical framework for money velocity taking into account the effect of financial innovations. Second, we test the model on Ugandan time series data using the ARDL bounds testing approach. Third, we check for the stability of the long-run money velocity function. Results show significant negative and positive effects of financial innovations on the money velocity in the short and long run, respectively. In addition, the long-run money velocity equation is stable despite the financial innovations that have evolved over time. Furthermore, other macroeconomic determinants of money velocity, including real income, the 91-day treasury bill rates, inflation expectations and the exchange rate exhibited a significant and positive long-run relationship with money velocity except for real income. These results suggest that financial innovations have not altered the long-run stability of money velocity in Uganda. Thus, given the importance of financial innovations in enhancing the access to financial services, we recommend that more technological advances and diversification of financial products should be enhanced so as to improve financial sector development and overall economic growth.