Causal relationship between financial development and economic growth in Southern Africa: a static and dynamic panel data approach (2006-2015)

Abstract

The study seeks to investigate the causal linkage between financial development and economic growth of 14 Southern African countries over the period 2006-2015. The study utilises static and dynamic panel regression models with private sector credit ratio and broad money ratio as financial development indicators. Mixed findings are found in this study depending on the method used. There is, however, convincing evidence of causality running from financial development to economic growth which is in-line with supply-leading hypothesis by Patrick (1966). Varying result are obtained for demand-leading hypothesis from one model to another. Financial development through facilitating the allocation of credit to the most productive private sectors as well as effective managing of its monetary policies are recommended.