Financial structure and economic growth link in African countries : a panel cointegration analysis

This paper examines the linkages between financial structure (market-based vs. bank-based) and economic growth in 7 African countries using newly developed panel data co-integration analysis and the dynamic time series modeling approach. The results from the time-series approach show evidence of unidirectional causality running from market-oriented as well as bank-oriented financial systems to economic growth. Our findings from FMOLS indicate that the market-based financial system is important for explaining output growth through enhancing efficiency and productivity whereas the banking system development is significantly associated with capital accumulation growth. Policy wise, the empirical evidence presented suggests that governments in the African continent should play a more positive role in fostering capital market development to boost investment to stimulate long-term economic growth.