Financial Structure and Economic Growth Link in African Countries: A Panel Co-integration Analysis

Abdullahi Ahmed, Abu Wahid

    Research output: Contribution to journalArticle

    21 Citations (Scopus)

    Abstract

    Purpose: This paper aims to use the newly developed panel data cointegration analysis and the dynamic time series modeling approach to examine the linkages between financial structure (market-based vs bank-based) and economic growth in African economies. Design/methodology/approach: The research investigates the dynamic relationship between financial structure and economic growth in a panel of a group of seven African developing countries over the period of 1986-2007. The paper uses various indicators/measures of financial structure and financial system, and employs the traditional time-series analysis for causality as well as the newly developed panel unit root and cointegration techniques and estimated finance-growth relationship using FMOLS for heterogeneous panel. Findings: From the dynamic heterogeneous panel approach, the paper firstly finds that market-based financial system is important for explaining output growth through enhancing efficiency and productivity. Second, the authors' empirical evidence supports the view that higher levels of banking system development are positively associated with capital accumulation growth and lead to faster rates of economic growth. Originality/value: Panel cointegration, group mean panel FMOLS and country-by-country time series investigations indicate that the market-based financial system is important for explaining output growth through enhancing efficiency and productivity, whereas the development of banking system is significantly associated with capital accumulation growth. Further results from the time-series approach show evidence of unidirectional causality running from market-oriented as well as bank-oriented financial systems to economic growth.

    Original languageEnglish
    Pages (from-to)331-357
    Number of pages27
    JournalJournal of Economic Studies
    Volume38
    Issue number3
    DOIs
    Publication statusPublished - Aug 2011

    Keywords

    • Economic growth
    • Financial structure
    • Panel Cointegration
    • Sub Saharan Africa

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