Does Economic Growth Promote Financial Development?

Michael Adusei

Abstract


The paper investigates whether economic growth promotes financial development with
annual time series data (1981-2010) from 24 African countries. The study uses Generalized
Method of Moments (GMM) estimation technique with domestic credit to the private sector
as proxy for financial development. The results show that economic growth promotes
financial development in the 24 African countries. The results also show that human capital
and inflation have positive and negative relationships with financial development respectively.
These findings suggest that policies that stimulate economic growth and human capital
development as well as keep inflation rates at low levels are needed to improve the financial
systems of the study countries.


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DOI: http://dx.doi.org/10.5296/rae.v6i2.5106

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