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Financial Development and Economic Growth:
Evidence
from Niger
Abstract
The relationship between financial development and economic
growth is a controversial issue. For developing countries, empirical studies
have provided mixed results. This study seeks to explore the relationship
between financial development and economic growth in Niger from 1970 to 2010.
We used two variables to proxy financial development namely; credit to the
private sector to GDP denoted by CP and financial deepening denoted by FD. The
economic growth is proxied by real GDP. In order to check this relationship a
Vector Error Correction Model was carried out. Unit root test was conducted for
stationarity, and all the series were found to be nonstationary at level.
However their first differences were stationary at the same order.
Additionally, Cointegration test was carried out, revealing that there was long
run equilibrium relationship among the variables and economic growth. In case
of the long run, financial deepening (FD) had positive impact on GDP however,
credit to the private sector to GDP was found to hinder economic growth.
Consequently, the authority in Niger should enact laws and policies to
establish a central credit bureau linking all banks to limit defaults on loan
payments. They should also build stronger and more diversified financial and
banking sector by continuing with the liberalization policy so as to create
competition among the banks. Finally, the populace should be sensitized and
educated on the security of the banks against collapse in order to create
confidence in citizens about the sustainability of the banking sector.
Keys Words: Financial Development; Economic
Growth; Niger, Credit to private sector, Africa.
Table of Contents
Chapter 1 Introduction 1
1.1. Motivation 3
1.2. Scope of the Study 3
1.3 Brief overview of economic growth and financial
sector Development in
Niger 3
1.3.1 Economic Growth 3
1.3.2 Financial Sector Development 4
1.4 Disposition 5
Chapter 2 Literature Review 6
2.1 Financial development: a factor for economic growth
6
2.2 Financial development: a less factor for economic
growth 8
2.3 Financial liberalization and economic growth in the
WAEMU countries 8
Chapter 3 Empirical Analysis 10
3.1 Data and Description of Variables 10
3.1.1 Data 10
3.1.2 Economic Growth Indicator 10
3.1.2 Financial Development Indicators 10
3.2 Unit root Test 14
3.2.1 ADF test 15
3.2.2 Test Results 16
3.3 Empirical results 16
3.3.1. Vector Autoregression (VAR) Lag Length
17
3.3.2. Cointegration Test 17
3.3.3. Cointegration results 18
3.3.4. Vector Error Correction Model (VECM)
19
Chapter 4 Conclusion and Policy Implications
23
4.1. Conclusion 23
4.2. Policy Implications 23
References 25
Appendix 28
Acknowledgment 33
Table of Figures
Figure 3.1: Trend of individual variables GDP, FD, and CP in log
level 12
Figure 3.2: Log first differences of individual variables 13
List of Tables
Table 3.1 Descriptive statistic of the variables 14
Table 3.2 Descriptive statistic of the first difference of the
Variables 14
Table 3.3 Unit root test of level 16
Table 3.4 Unit root test of first difference 16
Table 3.5 VAR lag order selection criteria 17
Table 3.7 Vector error correction estimates 20
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