Financial development and economic growth nexus in Africa

Abstract

AbstractIn contemporary years, African economies have experienced a period of rapid economic change to the sustainable growth of economic development. Although the existing literature has confirmed that investment and foreign business are two central growth engines of African's economy, examinations on the impacts of financial development (FD)‐economic growth (EG) nexus using a comprehensive structure are still unusual. This paper examines the dynamic nexus between financial development‐Economic growths using a country data set covering the period 1980 to 2017 by using panel vector autoregressive and the panel quantile regression technique. The empirical results confirm that significant cointegration relationships among FD‐EG exist, no matter in the sub‐sample for the countries. At the same time the granger causality test, report that foreign direct investment (FDI) and trade granger cause per capita gross domestic product. The motivation of the empirical investigation lies in reviewing the broad effect of financial development‐economic growth nexus and providing precise recommendations to policymakers. Also, to make the conclusion more relevant, we discussed the results for the subsamples for the developing African countries (Western, Southern, Northern, Central, and Eastern). Distinctive indicators for financial development are applied to affirm the stability and robustness of the estimation outcomes. Further restructuring the financial system and accelerating the change of the economic structure are dynamic for African's sustainable economic growth.