The Relationship between Financial Development and Economic Growth in Africa

Musamali, Rodgers; Nyamongo, Esman Morekwa; Moyi, Eliud

doi:10.5296/rae.v6i2.5226

Cited by 22 publications

(18 citation statements)

References 34 publications

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“…The financial development was represented by two different measuring variables, broad money (M2) to GDP ratio and private sector credit (PSC) to the GDP of the respective years. The broad money to GDP (M2/GDP) ratio is the most regularly used measure of FD (Musamali et al, 2014;Badeeb and Lean, 2017). Likewise, the National Bank of Ethiopia ( 2019) explained that the ratio of broad money to the GDP (M2/GDP) is an important financial deepening indicator.…”

Section: Methodsmentioning

confidence: 99%

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The Dynamic Link Between Financial Development, Trade Openness and Foreign Direct Investment: Empirical Evidence from Ethiopia

Tesega¹

2021

APMAJ

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Foreign direct investment (FDI) is an important source of external financing and an important factor for the economic development of a country. FDI is highly important especially for developing countries as it brings modern technologies and management skills in addition to narrowing the financial gaps. In this sense the knowledge of what determines FDI will have a tremendous significance. With the objective of empirically determining the long-run and short-run relationships between financial development, trade openness and FDI inflows in Ethiopia this study employed the ARDL model. The findings indicated that private sector credit, M2 and trade openness have a positive and significant influence on FDI inflows in the long-run while M2, and trade openness has a positive and significant influence on FDI in the short-run too. Current period private sector credit had no impact on FDI while the one period lag of it has a positive significant effect on FDI. Likewise, the causality test results disclose the presence of bi-directional causal relationships between private sector credit and FDI, and between M2 and trade openness. Furthermore, the findings indicate a one direction Granger cause from M2 to FDI. Policy makers are advised to consider trade openness and financial development measures in their quest for more FDI inflow. Keywords: FDI, trade openness, financial development, ARDL, Ethiopia

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Section: Methodsmentioning

confidence: 99%

“…Similarly, if M2/GDP increases by 1%, the FDI inflow towards this country increases by 0.85%. The larger value of the M2 to GDP ratio indicates a higher level of FD in a country (Musamali et al, 2014). It implies that higher FD, measured as M2/GDP, is among the important attracting forces of FDI.…”

Section: The Long-run and Short-run Analysismentioning

confidence: 99%

The Dynamic Link Between Financial Development, Trade Openness and Foreign Direct Investment: Empirical Evidence from Ethiopia

Tesega¹

2021

APMAJ

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“…(2011), the results of their work advocated a feedback effect between the financial sector and economic growth for most of the emerging regions. Musamali and al. (2014) examined the relationship between financial development and economic growth in 50 African countries for the period 1980-2008.…”

Section: Feedback Effect: a Two-way Causal Relationship Between Finanmentioning

confidence: 99%

On the Causal Nature between Financial Development and Economic Growth in the Democratic Republic of the Congo: Is it Supply Leading or Demand Following?

Pinshi

2020

J. of Adv. Stud. Finan.

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This paper seeks to study and answer the question on the nature and direction of the causality between financial development and economic growth in the Democratic Republic of the Congo (DRC) using data from 2004 to 2019. The long-term relationship not being robust, we opted for the short-term dynamics with the causality test in the sense of Granger to support this question. The results indicated the existence of a one-way causality from economic growth to financial development. This result is in line with the Demand following hypothesis, given the country’s economic and financial landscape, which presents a less deep financial system. Consequently, choices of growth policies (increase in knowledge, infrastructure, pleasant business climate, structural reforms, etc.) should be adopted to enhance and develop the Congolese financial system. However, we recognize that once growth is restored and becomes sustainable, financial development could lead to sustained and resilient economic growth.

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“…The findings revealed that financial intermediation has a significant impact on economic growth in Nigeria. Musamali, Nyamongo, and Moyi (2014) examined the relationship between financial development and economic growth from 50 African countries for period 1980-2008. The result found that there was a positive relationship between financial development and economic growth.…”

Section: Introductionmentioning

confidence: 99%

Relationship between Financial Development and Economic Growth: Empirical Evidence in Indonesia

Hasan¹

2018

IJEF

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The aim of this paper to examine the relationship between financial development and economic growth in Indonesia by using data from 1986 until 2014. Johansen co-integration and Granger causality are utilized to analyze the data. The financial development is measured by the ratio of broad money and other control variables such as trade openness and government expenditure. The finding indicates that there is long run relationship between financial development and economic growth. Meanwhile, a unidirectional relationship had been found, it come from economic growth to financial development. Therefore, a policy to increase economic growth will push forward in proper to improve financial development in Indonesia.

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The Relationship between Financial Development and Economic Growth in Africa

Cited by 22 publications

References 34 publications

The Dynamic Link Between Financial Development, Trade Openness and Foreign Direct Investment: Empirical Evidence from Ethiopia

The Dynamic Link Between Financial Development, Trade Openness and Foreign Direct Investment: Empirical Evidence from Ethiopia

On the Causal Nature between Financial Development and Economic Growth in the Democratic Republic of the Congo: Is it Supply Leading or Demand Following?

Relationship between Financial Development and Economic Growth: Empirical Evidence in Indonesia

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