Financial development and economic growth: Evidence from a panel of 16 African and non-African low-income countries

Figures & data

Table 1. Descriptive statistics

Countries	LGDP	PRVT	OPE	GFC	LF	CPI
Benin	5.663	14.825	57.503	21.717	73.390	85.291
Burkina Faso	6.443	15.342	41.950	22.470	85.140	87.278
Burundi	1.729	15.626	36.014	16.193	84.545	68.397
Central African Republic	1.667	7.364	39.327	10.789	78.700	87.004
Chad	6.563	3.986	74.620	26.741	72.045	86.750
Guinea-Bissau	0.762	5.541	49.258	9.074	73.050	83.994
Madagascar	7.481	10.166	65.363	19.771	88.665	66.822
Malawi	5.211	7.294	60.522	14.179	80.750	70.246
Mali	6.789	15.337	56.107	19.210	58.165	88.248
Mozambique	6.676	15.380	72.930	19.320	85.045	66.444
Nepal	12.765	37.487	49.922	21.015	86.945	75.105
Niger	4.575	8.040	50.431	21.715	64.230	87.751
Senegal	10.324	21.891	68.270	23.279	77.405	90.806
Tanzania	22.512	8.393	45.525	24.029	90.510	75.495
Togo	2.804	20.414	89.796	16.667	80.825	85.913
Uganda	13.733	9.297	41.347	21.612	80.480	78.127
Average	7.231	13.524	56.180	19.236	78.743	80.230
Standard deviation	5.501	8.266	14.941	4.786	8.838	8.585

Notes: This table presents a 20-year average of all the variables used in this study. GDP is the real GDP measured in 2010 with the US dollar in billion, OPE is traded openness defined as import plus export to GDP ratio, PRVT is the credit to private sector by banks to GDP ratio, GFC is the gross fixed capital formation as percentage of GDP, LF is the labour force defined as percentage of economically active population (ages 15 and older) to the total population, and CPI is the consumer price index to account the inflation.

Table 2. Results of cross-sectional dependence and panel unit root test

Tests/Variables	LGDP	PRVT	GFC	OPE	LF (IPS)	CPI
Pesaran CD	42.077*	33.903*	11.414*	6.575*	1.021	46.838*
CIPS (level)	−2.529	−2.324	−2.137	−2.114	0.989	−1.524
CIPS (first difference)	−4.252*	−4.000*	−4.601*	−4.499*	−5.883*	−2.971*

Notes: Pesaran CD denotes cross-sectional dependence test statistics. The model used to test the unit root hypothesis is the one with intercept and trend. CIPS is the panel unit-root statistics developed by Pesaran (2007). LGDP is the log of real GDP measured in 2010 with the US dollar in billion, PRVT is the credit to private sector by banks to GDP ratio, OPE is trade openness defined as import plus export to GDP ratio, GFC is the gross fixed capital formation as percentage of GDP, LF is the labour force defined as percentage of economically active population (ages 15 and older) to the total population, and CPI is the consumer price index to account the inflation.

* Indicate significance at the 1%, respectively.

Table 3. Results of Pedroni panel cointegration test

	Statistics	Prob.	Weighted statistic	Prob.
Alternative hypothesis: common AR coefficients (within-dimension)
Panel v-Statistic	8.262*	0.000	8.831*	0.000
Panel rho-Statistic	2.675	0.996	2.370	0.991
Panel PP-Statistic	−6.480*	0.000	−7.490*	0.000
Panel ADF-Statistic	−5.702*	0.000	−6.708*	0.000
	Statistic			Prob.
Alternative hypothesis: individual AR coefficients (between-dimension)
Group rho-Statistic	4.329			1.000
Group PP-Statistic	−12.112*			0.000
Group ADF-Statistic	−5.779*			0.000

Notes: Series: LGDP PRVT OPE GFC LF, and CPI. Trend assumption: Deterministic intercept and trend. Automatic lag length selection based on SIC with a max lag of 2. LGDP is the log of real GDP measured in 2010 with the US dollar in billion, PRVT is the credit to private sector by banks to GDP ratio, OPE is trade openness defined as import plus export to GDP ratio, GFC is the gross fixed capital formation as percentage of GDP, LF is the labour force defined as percentage of economically active population (ages 15 and older) to the total population, and CPI is the consumer price index to account the inflation.

* Denotes the significance level at 1%.

Table 4. Results of fully modified OLS and dynamic OLS techniques

Variable	FMOLS		DOLS
	Coefficient	t-Statistic	Coefficient	t-Statistic
PRVT	0.015*	4.421	0.015*	4.300
GFC	0.001	0.448	0.002	0.667
OPE	0.007*	4.160	0.005*	2.877
LF	0.033*	4.366	0.033*	4.243
CPI	0.005*	6.429	0.005*	7.116
R-squared	0.970		0.967

Notes: This table presents the results of long-run estimates of DOLS and FMOLS, dynamic and fully modified ordinary least square methods, respectively. PRVT is the credit to private sector by banks to GDP ratio, OPE is trade openness defined as import plus export to GDP ratio, GFC is the gross fixed capital formation as percentage of GDP, LF is the labour force defined as percentage of economically active population (ages 15 and older) to the total population, and CPI is the consumer price index to account the inflation. The dependent variable is LGDP, the log of real GDP measured in 2010 with the US dollar in billion.

* Denotes the significance level at 1%.

Table 5. Results of long-run output coefficients using FMOLS Models for individual countries (dependent variable: LGDP)

Country	PRVT	GFC	OPE	LF	CPI	C	Adj_R^2
Benin	0.0129**	−0.0061*	0.0041**	−0.2022**	0.0109**	36.0659**	0.987
Burkina Faso	0.0198**	−0.0124*	0.0018	0.0985	0.0198**	12.3608	0.979
Burundi	0.0027	0.0011	0.0032*	0.0181*	0.0038**	19.2934**	0.978
Central African Republic	−0.0312**	0.0246**	−0.0152**	0.4473**	−0.0075**	−12.7569	0.617
Chad	0.0577*	−0.0175**	0.0076**	−1.4106**	0.0148**	122.6137	0.965
Guinea-Bissau	8.47E-05	0.0213**	−0.0046**	0.0347	0.0064*	17.4098**	0.594
Madagascar	−0.0279**	0.0028**	0.0032**	0.0134	0.0043**	21.2735**	0.979
Malawi	0.0273**	0.004	−0.002	0.002	0.0029**	21.8845**	0.983
Mali	0.0479**	0.0332**	−0.0078	−0.0537**	0.0015	26.7090**	0.982
Mozambique	−0.0032	0.0046	−0.0038**	0.1665**	0.0158**	7.6492**	0.991
Nepal	0.0001	−0.0364**	−0.0013	−0.0982**	0.0049**	32.2615**	0.988
Niger	0.0328**	0.0008	−0.0079*	−0.0095	0.0169**	21.4939**	0.961
Senegal	0.0261*	0.0119	−0.0059	−0.3534	0.0219*	47.9798**	0.957
Tanzania	0.0442**	0.003	−0.0043**	0.1433*	0.0049**	10.257	0.992
Togo	0.0045	0.0066	−0.0019	0.0258	0.0072*	19.0167**	0.945
Uganda	0.0479**	0.0332**	−0.0078	−0.0537**	0.0014	26.7091**	0.982

Notes: This table presents the results of long-run estimates of fully modified ordinary least square (FMOLS) for individual sample country. PRVT is the credit to private sector by banks to GDP ratio, OPE is trade openness defined as import plus export to GDP ratio, GFC is the gross fixed capital formation as percentage of GDP, LF is the labour force defined as percentage of economically active population (ages 15 and older) to the total population, and CPI is the consumer price index to account the inflation.

* Indicate the significance level at 5%, respectively.

** Indicate the significance level at 1%, respectively.

Table 6. Results of heterogeneous panel causality test

Null hypothesis	Zbar-Stat.	Prob.
PRVT does not homogeneously cause LGDP	1.557	0.119
LGDP does not homogeneously cause PRVT	1.844*	0.065
OPE does not homogeneously cause LGDP	−0.127	0.899
LGDP does not homogeneously cause OPE	−0.447	0.655
GFC does not homogeneously cause LGDP	−0.890	0.373
LGDP does not homogeneously cause GFC	−1.143	0.253
CPI does not homogeneously cause LGDP	3.817***	0.000
LGDP does not homogeneously cause CPI	2.937***	0.003
LF does not homogeneously cause LGDP	1.209	0.227
LGDP does not homogeneously cause LF	2.074**	0.038

Notes: This table presents the results of pairwise panel causality test of Dumitrescu and Hurlin (2012). LGDP is the log of real GDP measured in 2010 with the US dollar in billion, PRVT is the credit to private sector by banks to GDP ratio, OPE is trade openness defined as import plus export to GDP ratio, GFC is the gross fixed capital formation as percentage of GDP, LF is the labour force defined as percentage of economically active population (ages 15 and older) to the total population, and CPI is the consumer price index to account the inflation.

* Indicate the significance level at 10%, respectively.

** Indicate the significance level at 5%, respectively.

*** Indicate the significance level at 1%, respectively.

Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2), 265–312.10.1002/(ISSN)1099-1255

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Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460.10.1016/j.econmod.2012.02.014

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