Empirical Research on Financial Efficiency and Economic Growth in Sub-Saharan Africa
-
Ayine NIGO School of Organisations, Economy and Society, Westminster Business School , University of Westminster, UK
-
Vincent GIBOGWE School of Organisations, Economy and Society, Westminster Business School , University of Westminster, UK
This study contributes to the literature on financial efficiency and growth. We show evidence from the effects of controlling institutional variables given the increase in domestic credit. The domestic credit is adverse, with an insignificant effect on per capita income growth. We make two observations from our findings. First, the negative but insignificant coefficients of the measure of bank credit across all model specifications seem to go against the supply-leading hypothesis, as financial development hurts economic growth; nevertheless, given that the impact is insignificant, this draws more into a neutrality hypothesis of no effect. Second, the findings are likely indications of the underdeveloped state of sub-Saharan Africa's financial system, implying that the present state of the financial systems is not robust enough to be a contributory drive towards enhancing economic growth in the region. However, all models have positive control variables (Inflation and gross fixed capital formation). All coefficients of interactions between credit and institutional quality are statistically insignificant (negative in four of six models).
© 2023 The Author(s). Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Nigo, A. & Gibogwe, V. (2023). Empirical Research on Financial Efficiency and Economic Growth in Sub-Saharan Africa. Journal of Research, Innovation and Technologies , Volume II, 1(3), 18-30. https://doi.org/10.57017/jorit.v2.1(3).02
[1] Adeleye, N., Osabuohien, E. and Bowale, E. (2017). The Role of Institutions in the Finance-Inequality Nexus in Sub-Saharan Africa. Journal of Contextual Economics, 137(1-2), 173 – 192. https://doi.org/10.3790/schm. 137.1-2.173
[2] Adeniyi, O., Oyinlola, A., Omisakin, O., and Egwaikhide, F. (2015). Financial development and economic growth in Nigeria: Evidence from threshold modelling. Economic Analysis Policy, 47, 11–21. https://doi.org/10.1016/j. eap.2015.06.003
[3] Adu, G., Marbuah, G., and Mensah, J. T. (2013). Financial development and economic growth in Ghana: Do the measure of financial development matter? Review of Development Finance, 3(4), 192–203. https://doi.org/ 10.1016/j.rdf.2013.11.001
[4] Adusei, M. (2013). Finance-growth nexus in Africa: A panel generalized method of moments (GMM) analysis', Asian Economic and Financial Review, 3(10), 1314–1324. https://archive.aessweb.com/index.php/5002/ article/view/1091
[5] Aluko, O. A. and Ibrahim, M. (2020). Institutions and The Financial Development–Economic Growth Nexus in Sub-Saharan Africa. Economic Notes, 49(3), 1-16. https://doi.org/10.1111/ecno.12163
[6] Aluko, O. A., Adeyeye, O. P. and Oladele, P. O. (2020). Finance–Growth Nexus in Sub‑Saharan Africa Revisited: Evidence Based on a New Composite Index. Economic Change and Restructuring, 53(2), 333–355. https://doi.org/10.1007/s10644-019-09253-9
[7] Akinlo, A. E., and Egbetunde, T. (2010). Financial development and economic growth: The experience of 10 sub-Saharan African countries revisited. The Review of Finance and Banking, 2(1), 17-20. https://rfb.ase.ro/ articole/A2-Akinlo.pdf
[8] Appiah, M., Li, F. and Frowne, D. I. (2020). Financial Development, Institutional Quality and Economic Growth: Evidence from ECOWAS Countries. Organizations and Markets in Emerging Economies, 11(1), 6–17. https://doi.org/10.15388/omee.2020.11.20
[9] Arellano, M. and Bover, O. (1995). Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal of Econometrics, 68(1), 29-51. https://doi.org/10.1016/0304-4076(94)01642-D
[10] Arellano, M. and Bond, S. (April 1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
[11] Arcand, J. L., Berkes, E., and Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20(2), 105-148. https://doi.org/10.1007/s10887-015-9115-2
[12] Bayar, Y., Borozan, D. & Gavriletea, M. D. (2021). Banking Sector Stability and Economic Growth in Post-Transition European Union Countries. International Journal of Finance and Economics, 26(1), 949–961. https://doi.org/10.1002/ijfe.1829
[13] Bist, J.P. (2018). Financial development and economic growth: Evidence from a panel of 16 African and non-African low-income countries', Cogent Economics & Finance, 6(1), 1–17. https://doi.org/10.1080/23322039. 2018.1449780
[14] Blundell, R., and Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
[15] Carr, T. (2017). A Critique of GDP Per Capita as a Measure of Wellbeing. North-eastern University's Student Journal of Economics.https://web.northeastern.edu/econpress/2017/01/23/a-critique-of-gdp-per-capita-as-a-measure-of-wellbeing/
[16] Cheng, S. Y. and Hou, H. (2022). Innovation, Financial Development, and Growth: Evidences from Industrial and Emerging Countries. Economic Change and Restructuring, 55, 1629–1653 https://doi.org/10.1007/ s10644-021-09361-5
[17] Schumpeter, J. A. (1934). The Theory of Economic Development. An inquiry into profits, capital, credit, interest and the business cycle. Harvard Economic Studies, 255pp. ISBN 978-067487990
[18] Dada, J. T. and Abanikanda, E. O. (2022). The Moderating Effect of Institutions in Foreign Direct Investment Led Growth Hypothesis in Nigeria. Economic Change and Restructuring, 55, 903–929. https://doi.org/ 10.1007/s10644-021-09332-w
[19] Demirgüç-Kunt, A. and Levine, R. (2004). Financial Structures and Economic Growth: A cross-country Comparison of Banks, Markets, and Development, Cambridge, The MIT Press. ISBN: 978-0262541794
[20] Effiong, E. (2015). Financial development, institutions and economic growth: Evidence from sub-Saharan Africa, MPRA Paper 66085, University Library of Munich, Munich.
[21] Ehigiamusoe, K. U. (2021). The Nexus Between Tourism, Financial Development, and Economic Growth: Evidence from African Countries. African Development Review, 33(2), 382-396. https://doi.org/10.1111/1467-8268.12579
[22] Ehigiamusoe, K. U. and Lean, H. H. (2018), Finance–growth nexus: new insights from the West African Region, Emerging Markets Finance and Trade, 54(11), 2596–2613. https://doi.org/10.1080/1540496X.2017. 1364623
[23] Gerschenkron, A. (1962). Economic Backwardness in Historical Perspective: A Book of Essays (Volume 584). Cambridge, MA: Belknap Press of Harvard University Press. file:///Users/laura/Downloads/ Alexander%20 Gerschenkron%20%20Economic%20Backwardness %20in%20Historical%20Perspective_%20A%20Book%20of%20Essays-Belknap%20Press%20(1962)-compressed.pdf
[24] Greenwood, J., and Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy, 98(5), Part 1, 1076-1107. https://www.jstor.org/stable/2937625
[25] Ghirmay, T. (2004). Financial development and economic growth in Sub‐Saharan African countries: evidence from time series analysis. African Development Review, 16(3), 415-432. https://doi.org/10.1111/j.1017-6772.2004.00098.x
[26] Gozgor, G. (2015). Causal relation between economic growth and domestic credit in the economic globalization: Evidence from the Hatemi-J's test. The Journal of International Trade & Economic Development, 24(3), 395-408. https://doi.org/10.1080/09638199.2014.908325
[27] Gilquin, G. and Gries, S. (2009). Corpora and experimental methods: A state-of-the-art review, 5(1), 1-26. https://doi.org/10.1515/CLLT.2009.001
[28] Ibrahim, M. and Acquah, A. M. (2021). Re-Examining the Causal Relationships Among FDI. Economic Growth and Financial Sector Development in Africa. International Review of Applied Economics, 35(1), 45–63. https://doi.org/10.1080/02692171.2020.1822299
[29] Ibrahim, M. and Alagidede, P. (2018). Nonlinearities in financial development–economic growth nexus: Evidence from sub-Saharan Africa, Research in International Business and Finance, 46, 95–104. https://doi.org/10.1016/j.ribaf.2017.11.001
[30] Inoue, T. and Hamori, S. (2016). Financial access and economic growth: Evidence from sub-Saharan Africa, Emerging Markets Finance and Trade, 52(3), 743–753. https://doi.org/10.1080/1540496X.2016.1116282
[31]Kar, N., Debbarma, M. K., Saha, A., and Pal, D. R. (2012). Study of implementing automated attendance system using face recognition technique. International Journal of Computer and Communication Engineering, 1(2), 100-103. DOI: 10.7763/IJCCE.2012.V1.28
[32] Lee, C. C., Olasehinde-Williams, G. and Olanipekun, I. (2021). Financial Systems, Regulatory Quality, and Economic Growth. The Journal of International Trade and Economic Development, 30(2), 246–274. https://doi.org/10.1080/09638199.2020.1847172
[33] Lucas, R. E. Jr. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3-42. https://doi.org/10.1016/0304-3932(88)90168-7
[34] McKinnon, A. (2010). Green logistics: the carbon agenda. Electronic Scientific Journal of Logistics, Volume 6, 3(1). http://www.logforum.net/vol6/issue3/no1
[35] Menyah, K., Nazlioglu, S., & Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, 386–394. https://doi.org/10.1016/j.econmod.2013.11.044
[36] Naz, S. A. and Gulzar, S. (2022). Impact of Islamic Finance on Economic Growth: An Empirical Analysis of Muslim Countries. The Singapore Economic Review, 67(1), 245–265. https://doi.org/10.1142/S0217590 819420062
[37] Nyasha, S., and Odhiambo, N. M. (2015). The impact of banks and stock market development on economic growth in South Africa: an ARDL-bounds testing approach. Contemporary Economics, 9(1), 93-108. DOI: 10.5709/ce.1897-9254.161
[38] Odhiambo, N. M. 2010. Finance-investment-growth nexus in South Africa. An ARDL bounds testing procedure, Economic Change Restructuring, 43, 205–219. https://doi.org/10.1007/s10644-010-9085-5
[39] Osabuohien, E., Efobi, U. R. and Gitau, C. M. (2015). Environment challenges in Africa: further dimensions to the trade, MNCs and energy debate, Management of Environmental Quality, 26(1), 118-137. https://doi.org/ 10.1108/MEQ-04-2014-0058
[40] Patrick, H. T. (1966). Financial Development and Economic Growth in Underdeveloped Countries. Economic Development and Cultural Change, 14(2), 174–189. http://dx.doi.org/10.1086/450153
[41] Robinson, J. (1952). The Generalisation of the General Theory, in the Rate of Interest, and Other Essays. 2nd Edition, Macmillan, London. https://doi.org/10.1007/978-1-349-16188-1
[42] Rioja, F., and Valev, N. (2004). Does one size fit all? A re-examination of the finance and growth relationship. Journal of Development economics, 74(2), 429-447. https://doi.org/10.1016/j.jdeveco.2003.06.006
[43] Young, J. E., Rygh, J. L., Weinberger, A. D., and Beck, A. T. (2014). Cognitive therapy for depression. In D. H. Barlow (Ed.), Clinical handbook of psychological disorders: A step-by-step treatment manual, pp. 275–331. The Guilford Press. https://psycnet.apa.org/record/2014-05860-009
*** World Bank (2022). World Development Indicators. https://databank.worldbank.org/source/world-development-indicators
*** World Bank (2022). World Governance Indicators. https://www.unes co.org/en/world-media-trends/worldwide-governance-indicatorswgi #:~:text=The%20Worldwide%20Governance%20Indicators%20(WGI,Regulatory% 20Quality%3B%20Rule%20of%20Law%3B