Essays on Financial Development and Growth in Sub-Saharan African Countries.

This thesis investigates the relationship between financial development and economic growth in Sub Saharan Africa for the period 1970-2005. The first chapter assesses three growth theories using panel data. The study lends empirical credence to the endogenous growth theory, but finds weak evidence for growth-impact of financial development in the region. The study suggests that financial development is important for economic growth in the presence of highly developed human capital and other institutional factors. The first essay finds growth-complementarity feature between financial development and human capital in the region. In the second empirical essay, the thesis investigates the determinants of financial development in the region. In particular, it analyses the impact of spatial externality on financial development in SSA for the period of 1970-2005 in a dynamic panel data framework that uses the Arellano and Bond GMM estimator. The findings of this chapter suggest that the financial system is geographically sensitive, and thus not immune to spatial externality. The findings suggest that spatial effects may include crowding-out of domestic credit market, enhancing competition among banks and promoting efficient resource allocation for overall economic growth. Finally, the third empirical essay investigates the relationship between finance and growth in a panel data framework. It suggests another channel by which this nexus can be analysed. The study uses a panel cointegration test to assess the long run relationship between finance and growth in the presence of spatial externality. The study finds empirical support for the demand-following hypothesis. It also indicates that there is a long run impact of spatial externality on financial development in particular and economic growth in general for the sample countries in the study. This chapter suggests a regional framework for the relationship between finance and growth.