Author

  • Tochukwu Timothy Okoli

    • Department of Economics, University of Zululand, KwaDlangezwa, South Africa
    • Department of Economics, Federal University Oye-Ekiti, Ekiti State, Nigeria
    • South Africa

  • Ajibola Rhoda Oluwafisayomi

    • Department of Economics, Federal University Oye-Ekiti, Ekiti State, Nigeria
    • Nigeria

Abstract

The search for financial development’s transmission channel to growth has always been updated in the literature. While there has not been a consensus on this matter, empirical findings on finance-growth nexus have been ambiguous. Relying on this, we investigate its bank development transmission channel to growth in a panel of twenty-eight Sub-Saharan Africa (SSA) countries from 2000-2016. Having adopted the augmented Solow (1956) and Mankiw et al. (1992) growth model, the fixed effect and dynamic system GMM estimation techniques reveals a negative non-significant and positive significant direct impact of finance on growth in the static and dynamic models respectively, thereby suggesting institutional (dynamic) factors that can spur finance. Secondly, the non-linear effects of bank development had a direct positive significant impact on growth and its marginal-effects before and after the financial crisis of 2007/08 were relatively stable. This implies that banks in SSA were relatively stable in financial intermediation; therefore SSA countries need to reinforce and improve its banking policy through FinTechs adoption. Finally, the interaction between bank development and financial development significantly increase steady-state growth. This implies that SSA economies can promote steady-state growth from financial development only when a threshold of bank development is reached.

Keywords

References

  • Acaravci, A. & Ozturk, I. (2010). Electricity consumption-growth nexus: Evidence from panel data for transition countries. Energy Economics, 32(3), 604-608.
  • Anzoategui, D., Rocha, R. & Perı´a, S. M. (2010). Bank competition in the Middle East and Northern Africa Region. Review of Middle East Economics and Finance, 6(2), 26–48.
  • Anzoategui, D., Martinez, P. M. S. & Rocha, R. R. (2010). Bank Competition in the Middle East and Northern Africa Region, Review of Middle East Economics and Finance, 6(2), 26–48.
  • Arellano, M. & Bond, S. (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.
  • Arestis, P., Chortareas, G. & Desli, E. (2006). Financial development and productive efficiency in OECD countries: an exploratory analysis. The Manchester School, 74(4), 417-440.
  • Caggiano, G., Calice, P. & Leonida, L. (2014). Early warning systems and systemic banking crises in lowincome countries: A multinomial logit approach. Journal of Banking & Finance, 47, 258-269.
  • Caselli, F., Esquivel G. & Lefort, F. (1996). Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics. Journal of Economic Growth, 1(3), 363-389.
  • Cojocaru, L., Falaris, E. M., Hoffman, S. D. & Miller, J. B. (2016). Financial system development and economic growth in transition economies: New empirical evidence from the CEE and CIS countries. Emerging Markets Finance and Trade, 52(1), 223-236.
  • Cooray, A. (2010). Do stock markets lead to economic growth? Journal of Policy Modelling, 32(4), 448-460.
  • Durusu-Ciftci, D., Ispir, M. S. & Yetkiner, H. (2017). Financial development and economic growth: Some theory and more evidence. Journal of Policy Modelling, 39(2), 290-306.
  • Ferreira, C. (2013). Bank performance and economic growth: evidence from Granger panel causality estimations.
  • Gai, P., Kapadia, S., Millard, S. & Perez, A. (2008). Financial innovation, macroeconomic stability and systemic crises. The Economic Journal, 118(527), 401-426.
  • Gurley, J. G. & Shaw, E. S. (1960). Money in a theory of finance. Washington, DC: Brookings Institution
  • Gregorio, J. & Guidotti, P. E. (1992). Financial development and economic growth. International Monetary Fund working paper 92/101.
  • Hasan, I., Koetter, M., Lensink, R. & Meesters, A. (2008). Bank efficiency, financial depth, and economic growth.
  • Iheanacho, E. (2016). The impact of financial development on economic growth in Nigeria: An ARDL analysis. Economies, 4(4), 26.
  • Hondroyiannis, G., Lolos, S. & Papapetrou, E. (2005). Financial markets and economic growth in Greece, 1986–1999. Journal of International Financial Markets, Institutions and Money, 15(2), 173-188.
  • Huang, H. C. & Lin, S. C. (2009). Non‐linear finance-growth nexus: A threshold with instrumental variable approach 1. Economics of Transition, 17(3), 439-466.
  • Killick, T. (1991). Financial management and economic development: some issues. South African Journal of Economics, 59(3), 167-180.
  • Kpodar, K. & Andrianaivo, M. (2011). ICT, financial inclusion, and growth evidence from African countries (No. 11-73). International Monetary Fund.
  • Levine, R. & Zervos, S. (1998). Stock markets, banks and economic growth. The American Economic Review, 88, 537–558.
  • Levine, R., Loayza, N. & Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1), 31-77.
  • Levine, R. (2004). Finance and growth: theory and evidence: NBER Working Paper Series n. 10766.
  • Luintel, K. B. & Khan, M. (1999). A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR. Journal of development economics, 60(2), 381-405.
  • Mankiw, N. G., Romer, D. & Weil, D. N. (1992). A contribution to the empirics of economic growth. The quarterly journal of economics, 107(2), 407-437.
  • McKinnon, R. I. (1973). Money and Capital in Economic Development. Washington, DC: Brookings Institution, 1973; Shaw, E. Financial Deepening in Economic Development.
  • Nzotta, S. M. & Okereke, E. J. (2009). Financial deepening and economic development of Nigeria: An Empirical Investigation.
  • Pagano, M. (1993). Financial markets and growth: an overview. European economic review, 37(2-3), 613-622.
  • Rioja, F. & Valev, N. (2004). Finance and the sources of growth at various stages of economic development. Economic Inquiry, 42(1), 127-140.
  • Sassi, S. & Goaied, M. (2013). Financial development, ICT diffusion and economic growth: Lessons from MENA region. Telecommunications Policy, 37(4-5), 252-261.
  • Shamim, F. (2007). The ICT environment, financial sector and economic growth: a cross-country analysis. Journal of Economic Studies, 34(4), 352–370.
  • Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.
  • Torruam, J. T., Chiawa, M. A. & Abur, C. C. (2013). Financial deepening and economic growth in Nigeria: an application of co-integration and causality analysis. In 3rd International Conference on Intelligent Computational System (ICIC’2013). April (pp. 29-30).
  • Vu, K. M. (2011). ICT as a source of economic growth in the information age: Empirical evidence from the 1996–2005 period. Telecommunications Policy, 35(4), 357-372.
  • World Bank. (1982). World Development Report 1989. New York: Oxford University Press for the World Bank.
  • World Bank. (2013). Financing for Development Report post-2015, October, 2013.
  • Wu, J. L., Hou, H. & Cheng, S. Y. (2010). The dynamic impacts of financial institutions on economic growth: Evidence from the European Union. Journal of Macroeconomics, 32(3), 879-891.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Okoli, T. T., & Oluwafisayomi, A. R. (2019). Investigating the Banking Sector Development Transmission Mechanism of Financial Development to Growth: Evidence from Sub-Saharan Africa (SSA). Journal of Economics and Behavioral Studies, 11(2(J), 120-131. https://doi.org/10.22610/jebs.v11i2(J).2827

Share this article

License

Copyright (c) 2019 Tochukwu Timothy Okoli, Ajibola Rhoda Oluwafisayomi (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 11 No. 2(J) (2019) Trade, Growth & Digital Transformation in Africa View issue contents

Published

2019-05-13

Submissions

Have research to publish? Journal of Economics and Behavioral Studies welcomes submissions.

Make a Submission