The causal relationship between financial development and economic growth in Africa |
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Authors: | Eric Evans Osei Opoku Muazu Ibrahim Yakubu Awudu Sare |
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Affiliation: | 1. Department of Economics and Finance, City University of Hong Kong, Kowloon, Hong Kongericopoku2-c@my.cityu.edu.hkhttps://orcid.org/0000-0002-4961-5984;3. School of Business and Law, Department of Banking and Finance, University for Development Studies, Wa, Ghanahttps://orcid.org/0000-0002-1286-0564;4. School of Business and Law, Department of Banking and Finance, University for Development Studies, Wa, Ghana |
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Abstract: | ABSTRACTPrevious empirical studies on the causal relationship between financial development and economic growth are not instructive given their failure to unearth the causality trend across the different time periods. Using a more recently developed and robust indicator of financial development, we revisit the causal relationship between financial development and economic growth within the framework of a frequency-domain spectral causality technique which allows the causality to vary across time. Using data from 47 African countries over the period 1980–2016, our findings largely suggest that, even though there is some evidence of demand-following, supply-leading and feedback hypotheses, for most part, we find strong support of neutrality hypothesis. Thus, financial development and economic growth at most frequency levels evolve independently. We infer that caution must be exercised in making general conclusions about the causal nexus between financial development and economic growth. |
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Keywords: | Financial development economic growth frequency domain causality Africa |
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