Financial Access and Economic Growth: Evidence from Sub-Saharan Africa

Abstract

This study empirically analyzes the effects of financial access on economic growth in Sub-Saharan Africa. By estimating panel data on thirty-seven countries from Sub-Saharan Africa between 2004 and 2012, we examine whether improved access to financial services has contributed to economic growth in this region. The empirical results clearly indicate that financial access has a statistically significant and robust effect on increasing economic growth in Sub-Saharan Africa.

KEY WORDS:

• economic growth
• financial access
• Sub-Saharan Africa

Acknowledgments

We are very grateful to two anonymous referees for many helpful comments and suggestions.

ORCID

Takeshi Inoue

http://orcid.org/0000-0003-1614-5231

Notes

^1. In addition, Agbetsiafa (2004), Ghirmay (2004), and Atindehou, Gueyie, and Amenounve (2005) are among the related literature on the causal relationship between remittances and financial deepening in Africa.

^2. Murinde (2012) reviews many studies that have used causality tests to analyze the relationship between financial deepening and economic growth in African countries. To explain why these studies have yielded inconsistent results, he points out such issues as potential specification bias, the selection of financial development indicators, and the statistical power of pretests, for example, unit root and cointegration tests.

^3. Inoue and Hamori (2013) measure the degree of financial permeation by employing microfinance-related indicators in seventy-six developing countries between 1995 and 2008 and examine their effect on reducing the poverty ratio.

^4. In addition, the G20 Basic Set of Financial Inclusion Indicators and Core Set of Financial Inclusion Indicators have been developed to capture the state of financial inclusion in a country by the Global Partnership for Financial Inclusion and the AFI Financial Inclusion Data Working Group, respectively. These indicators are based on existing data sources, such as the FAS, Global Findex, and Enterprise Surveys.

^5. The individual term in the dynamic panel model plays the role of the initial GDP level of each country.

^6. Appendix 1 reports these thirty-seven countries in Sub-Saharan Africa.

^7. Also see Adenuga and Omotosho (2013).

Additional information

Funding

This work was supported by JSPS KAKENHI Grant Number 26380334.