Abstract
This study examined the impact of financial development on the real sector in sub-Saharan Africa. The study used industrial value-added, productivity and agriculture value-added to proxy the real sector whilst domestic credit to the private sector, domestic credit by the bank and broad money are used as financial development indicators. Using panel data for 38 sub-Saharan countries over the period 1986 to 2015, this study found an inverse relationship between financial development and two out of the three indicators of the real sector used in this study. Based on countries’ classification by income, the study also found that financial development hurts the real sector in all the various income groups when the real sector is proxied by industrial value-added and productivity but produces contrary results when the real sector is proxied by agriculture value-added. Government expenditure and trade openness contributed to the development of the real sector. Corruption, as one of the institutional variables, harms the real sector. This study concluded by emphasising the need for the government to ensure balanced growth between financial development and the real sector.
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