Financial Development And Economic Growth In Sub - Saharan Africa A Panel Data Approach

The impact of financial development in economic growth remains to be controversial despiternintensive research on the issue. Moreover, the correlation between financial development andrnthe level of economic development is not clear. This, along with the lack of econometricallyrnstrong empirical studies, is the motive to undertake a separate study in SSA .rnUsing a panel data set of 27 SSA countries for the period 1974-2003, three different growthrnmodels are estimated by the systems GMM estimator that is found to be effective in solvingrnthe problems of endogeneity and omitted variable bias, which are common in pure cross-countryrnregressions. We obtained a negligible support to the view that finance leads economicrngrowth. Though financial development is found to positively influence physical capital growthrnin SSA, its insignificant impact on Total Factor Productivity has led financial development bernunimportant factor for economic growth. This may reflect the smallness of the financial sectorrnand the repressive financial policies, which were common in the region.rnHence, policy measures geared towards improving the efficiency promoting role of thernfinancial sector should be given due emphasis if the economy is to benefit From financialrndevelopment.

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