Chapter 4 Conclusion and Policy Implications
4.1. Conclusion
We investigated the existence of relationship between
financial developments and economic growth in Niger with annual time series
data from 1970 to 2010 using Vector Error Correction techniques. Results of ADF
unit root test demonstrated that the series were non stationary at their levels
but stationary at first difference. Additionally, Johansen Cointegration test
was applied to study the long run equilibrium relationship among the variables
and results indicate the existence of Cointegration among the variables. The
VECM was estimated to improve the dynamism of the short and long run
relationships. The error correction term is negative and statistically
significant indicating that after a shock in a previous year, the long run
disequilibrium will converge towards equilibrium at about 6.1% percent in a
current year. In the long run, we found that an increase in financial deepening
(FD) leads to an increase in GDP however; there was a negative and significant
effect between credit to the private sector to GDP and economic growth.
4.2. Policy Implications
Based on the findings of the empirical analysis, suggestions
are advanced for policy interventions. The negative relationship between credit
to private sector and economic growth may be due to inefficient allocation of
funds to productive sectors. This is mainly due to the fact that most borrowers
default on loan payments. As a result, banks are reluctant to give out credit
to many customers; they pursue selective lending to few sectors, especially the
mining and telecommunication industries. This creates a situation where there
is no readily available credit to legitimate entrepreneurs, leading to less
economic growth. Hence, to boost economic growth and development, the authority
in Niger should enact laws and policies to establish a central credit bureau
linking all banks. This will collate the names and history of all borrowers
such that previous loan defaulters as well as the ability of borrowers to honor
loan payments can easily be determined by credit officers. On the other
hand,
Financial Development and Economic Growth Evidence from
Niger
the positive correlation of financial deepening to economic
growth indicated that financial deepening had much influence on the economic
growth and developments of Niger. Therefore, to induce economic growth and
developments, the government has to work towards building a stronger and more
diversified financial and banking sector by continuing to liberalize the
financial sector so as to create competition among the banks. Competition will
drive banks to institute innovative policies and programs that are customer
friendly. For instance banks may be forced to embark on vigorous advertisement
to educate customers on the advantages of banking with them or allow creation
of zero-balanced deposit accounts. This will encourage more clients to save
resulting in more liquidity to promote economic growth. Another intervention is
to formulate directives for banks to conduct periodic and scheduled
sensitization and education programs for the populace about the security of the
banks against collapse. There is the general belief that the banks in Niger may
collapse at any time, resulting in many people not wanting to save. This
perception is borne out of the collapse of the banking sector in the 1980s.
Therefore, creating confidence among the citizens is vital for the
sustainability of the banks and the economic growth of Niger.
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