The effect of financial sector development on economic growth of selectedsub‐SaharanAfrica countries

Abstract

AbstractThe effect of financial sector development on economic growth is among the main debatable issue in economics and policymaking. Thus, by using different financial sector dimensions, this research tried to look at the effect of financial sector development on the economic growth of 25 sub‐Saharan Africa countries for the period 2010–2017. Precisely, three dynamic panel data models that look at the effect of financial sector depth, access, and efficiency on economic growth were estimated by two‐step system GMM estimation. In this research, credit extended to the private sector per GDP, commercial bank branch per 100,000 adult population, and Return to assets were used as a proxy and measures for financial sector depth, access, and efficiency respectively. Accordingly, the results revealed that financial sector depth, access, and efficiency have a positive and statistically significant effect on these countries' economic growth. Therefore, it is recommended that the concerned bodies that broadening the depth of financial institutions by giving more credit to the private sector is essential. Besides, the financial institutions will have to be expanded to increase their accessibility to the mass and take some measures to promote their efficiency.