Abstract
This study examines empirically the relationship between financial development and economic growth in the West African Economic and Monetary Union (WAEMU) for the period 1981-2010. Using the General Moment Method (GMM), the study found a positively and statistically significant effect of financial development on economic growth and the causality was bidirectional. In addition, the variable primary completion rate, foreign direct investment and real exchange rate contribute positively to economic growth in the region while inflation and openness discourage the economic growth in the region. In order to maintain a sustainable economic growth in those countries under study, the reforms for financial system improvement and education sector should be implemented. The policy makers should pursue target macroeconomic policies that may attract foreign direct investment while controlling for inflation and trade openness. Key words: Financial development, economic growth, WAEMU, devaluation, franc-CFA.
Highlights
In the recent past, there has been a growing body of literature which attempts to highlight the relationship between financial development and economic growth
This study examines empirically the relationship between financial development and economic growth in the West African Economic and Monetary Union (WAEMU) for the period 1981-2010
The variable primary completion rate, foreign direct investment and real exchange rate contribute positively to economic growth in the region while inflation and openness discourage the economic growth in the region
Summary
There has been a growing body of literature which attempts to highlight the relationship between financial development and economic growth. As countries in WAEMU region share similar historical, political, and socioeconomic backgrounds; it is important to investigate the finance-growth relationship in this region since we may not generalize the relation according to the divergence of previous empirical work. It is for these reasons that this study is set out to investigate the impact of financial development on economic growth for eight West African countries which include: Benin, Burkina Faso, Cote dIvoire, Guinea Bissau, Mali, Niger, Senegal and Togo, in West African Economic and Monetary Union (WAEMU) while taking into account the endogeneity problem.
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