System GMM Estimation to Determine the Effect of Financial Sector Development on Economic Growth: Evidence from Low and Middle-Income African Countries (2000-2017)
Abstract
This research study employed the System Generalized Method of Moments (GMM) estimation technique to examine the relationship between financial sector development and economic growth in low and middle-income African countries from 2000 to 2017. The study aimed to provide empirical evidence on the impact of financial sector development on economic growth and explored the channels through which this relationship operated. By analyzing a comprehensive dataset and accounting for panel data concerns, the study contributed to a better understanding of the dynamics between financial sector development and economic growth in the African context. The findings of this study revealed a significant positive effect of financial sector development on economic growth in low and middle-income African countries. Indicators of financial sector development, such as bank credit, stock market development, and financial inclusion, were found to be positively associated with economic growth, indicating that a well-functioning financial sector promoted efficient resource allocation, investment, and entrepreneurial activities, ultimately driving economic expansion. Furthermore, the study identified investment, productivity, and technological innovation as key channels through which financial sector development influenced economic growth. A developed financial sector provided improved access to financing, facilitated capital accumulation, and encouraged the adoption of advanced technologies, leading to higher productivity levels and overall economic growth. The analysis also highlighted heterogeneity in the relationship between financial sector development and economic growth across different country groups based on income levels, institutional quality, and geographical regions. This emphasized the importance of considering country-specific factors and tailoring policy interventions to address the unique challenges and opportunities present in each context. Based on the research findings, the study provided policy recommendations to foster financial sector development and promote inclusive economic growth in low and middle-income African countries. These recommendations included enhancing financial infrastructure, strengthening regulatory frameworks, promoting financial literacy and inclusion, encouraging technological innovation, and fostering institutional quality and governance.
Citations
IRE Journals:
Purity N. Namasaka , Tom Makumbi , James Wakodala
"System GMM Estimation to Determine the Effect of Financial Sector Development on Economic Growth: Evidence from Low and Middle-Income African Countries (2000-2017)" Iconic Research And Engineering Journals Volume 7 Issue 3 2023 Page 398-404
IEEE:
Purity N. Namasaka , Tom Makumbi , James Wakodala
"System GMM Estimation to Determine the Effect of Financial Sector Development on Economic Growth: Evidence from Low and Middle-Income African Countries (2000-2017)" Iconic Research And Engineering Journals, 7(3)
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