A Study on the Impact of Financial Intermediation on Economic Growth: Panel Evidence from West Africa

Abstract

A Study on the Impact of Financial Intermediation on Economic Growth: Panel Evidence from West Africa Bah Boubacar Alpha, Yibing Ding, Kone Abdrahmane, Mohamed Kargbo Abstract Weak growth episode has been the case in many African countries since 1970 up to 2000s. One fundamental intermediation gap in the Sub-Saharan Africa (SSA) region is the extremely limited financing for medium to long term lending facilities to promote growth. This situation is also the case for the West Africa (WA) region. The financial sector in the WA region is faced with problems of non-performing loans, weak credit evaluation mechanism, and high intermediation cost. Given the importance of financial development on economic growth, this study therefore, investigates the impact of financial intermediation on economic growth in WA countries. The study adopts panel data framework from 1985 to 2013. The findings of the study among others indicate that interest rate spread and inflation are high, as shown by the result of the summary statistics. In terms of the dynamic panel growth regression, broad money (M2) and the level of financial intermediation (M3) impact positively on growth in the region. Credit supply, inflation, and interest rate spread impact negatively on growth in the West Africa Region. The findings of this study are relevant to policy makers in formulating appropriate growth policies that can enhance sound and stable financial intermediation. These findings also are of significance to development organizations that are assisting with the growth process of African countries in shaping the future financial sector infrastructure and hence economic growth in the entire West Africa region and global. Full Text: PDF DOI: 10.15640/jmpp.v4n1a3