BBSA Research Projects (2016)

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Panel Analysis of the dynamic relationship between financial development and economic growth in Subsaharan Africa
(Strathmore University, 2015-11) Kiganya, Grace
Previous research on the relationship between financial development and economic growth has yielded mixed results. Whereas researchers agree on the presence of a positive relationship between finance and growth, they rarely agree on the direction of causality and the path the relationship takes. This study examines the direction of causality between financial development and economic growth in twenty countries in Sub-Saharan Africa and whether it changes over the course of development for the period 1963- 2013. The study employs dynamic panel analysis to account for the varying degrees of development and Pairwise Dumitrescu Hurl in Panel Causality Tests for testing multivariate causality between financial development and economic growth in SSA. Whereas the study establishes a positive relationship between economic growth and financial development, results suggest that the direction of causality does not change over the course of development. In most countries the direction of causality is bi-directional.