Abstract
Financial development has been identified as main drivers of economic growth. However, empirical probe of this nexus remains inconclusiveness due use of an inappropriate proxy by previous studies, and the inability of previous studies to consider globalization in this nexus. To this end, we probe the finance-growth nexus in the presence of globalization by applying the Pooled Mean Group (PMG) estimator to a sample of 21 countries spanning 1990–2017. The empirical results affirm the supply-leading hypothesis which indicates that financial development spur economic growth. In addition, our estimate provides evidence of a positive linear relationship between globalization and economic growth. Further, results indicate that physical capital investment plays an important role in accelerating economic performance of African economies. Based on these findings, it is important for African countries to promote globalization-financial development policies in order to have access to alternative sources of external financing and attract foreign investment that can spur growth of African countries.
Highlights
The objective of every economy is to achieve sustainable economic development because economic progress is essential for poverty reduction and infrastructure development in the long run (Shahbaz, Nasir, Hille and Mahalik, 2020)
This study aims to investigate the link between growth, financial development and globalization using a multivariate framework on panel data sets of 21 African countries from 1990 to 2017
The findings of this study are vital for understanding the relationship among financial development, globalization and economic growth in African countries
Summary
The objective of every economy is to achieve sustainable economic development because economic progress is essential for poverty reduction and infrastructure development in the long run (Shahbaz, Nasir, Hille and Mahalik, 2020). Financial development accelerate growth by mobilizing savings, encourages resource allocation, and eases divergence and management of risk (Sahay et al, 2015). A fully developed financial system fascinates investment, lowers information cost and enhances growth (Levine, 2005 and Ang, 2008a). Globalization entails the process whereby corporations and government connect across the globe (Zaidi, Zafar, Shahbaz & Hou, 2019). It promotes economic growth by allowing international investors access to local financial markets, improving the quality of financial institutions, and enhancing economic integration through trade and financial flows (Mishkin, 2009; Kandil et al 2015 and Atil et al, 2020). Rousseau and Sylla (2003) asserts that globalization gives access to innovative products, investment, and new ideas which increases per-capita income in the host country
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