Discussion Paper No. 99 of 2009 on Financial Sector Development and Economic Growth for African Countries

Abstract

This study addresses the key research question of whether differences in financial development are significantly associated with differences in economic growth for 13 African countries using panel data from 1984 to 2002. A base model first regressed real per capita growth on control variables. Thereafter, financial sector development variables are introduced progressively. The Hausman’s specification test favours the fixed effect model. The most plausible model shows that financial sector development variables contribute greatly in explaining economic growth. High co-efficients are associated with financial development variables. Thus, efforts of developing the financial sector should be emphasized particularly in African economies in order to achieve economic growth.