Abstract

MACHADO, Celsa M.D.C.; SARAIVA, António F.M.G.  and  VIEIRA, Paulo D.D.. Finance-growth nexus in sub-Saharan Africa. S. Afr. j. econ. manag. sci. [online]. 2021, vol.24, n.1, pp.1-11. ISSN 2222-3436.  http://dx.doi.org/10.4102/sajems.v24i1.3435.

BACKGROUND: There is now significant empirical literature suggesting that finance is good for growth only up to a threshold level of financial development, becoming harmful after that level, in developed and developing countries. AIM: This study extends this literature that investigates non-linearities on the finance-growth link, by testing the inverted U-shape hypothesis in sub-Saharan African countries, which are among the least developed ones. SETTING: 36 countries from sub-Saharan Africa over the period 1980-2015. METHOD: Estimation of quadratic dynamic panel data models by system-generalised method of moments. RESULTS: Empirical results show that there is a hump-shaped relationship between financial development and economic growth in sub-Saharan African countries. CONCLUSION: Results suggest that the hypothesis of 'too much finance harms economic growth' also holds for low-income and less developed countries, but for much lower threshold levels of financial development than those of more developed and higher-income countries. As for policy implications, measures to strengthen finance quality and other growth-enhancing strategies need to be undertaken, rather than increasing finance size.

Keywords : Financial development; economic growth; sub-Saharan Africa; non-linearity; dynamic panel model.

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