An Econometric Investigation in to Financial Intermediation, Domestic Investment and Economic Growth in Cameroon

Abstract

The finance-growth causalities have been widely investigated in the literature on finance and growth. Though it is generally accepted that finance affects economic growth and vice versa through capital formation, this channel has not received much attention in recent empirical works. It is on this ground, that this study is designed to examine the interactions between financial intermediation, domestic investment and economic growth in Cameroon. Using time series data from 1975 to 2014 inclusive obtained from World Development Indicators, and using the Vector Autoregression approach, results reveal that financial intermediation doesn’t have a significant effect on domestic investment in Cameroon. We found no causality from financial intermediation to domestic investment in Cameroon except in the case of commercial bank credit to GDP ratio. There was also no causality running from domestic investment to financial intermediation in Cameroon. Findings also revealed the significant effects of domestic investment, broad money, ratio of narrow money to broad money, Financial Intermediation Development index2 and Financial Intermediation Development index3 on Cameroon’s economic growth while the effects of domestic credit to private sector, central government claims and commercial bank credit to GDP ratio are insignificant.