Financial development and real sector in sub-Saharan Africa

Abstract

This study examined the impact of financial development on the real sector in sub-Saharan Africa. The study used industrial value-added, productivity and agriculture value-added to proxy the real sector whilst domestic credit to the private sector, domestic credit by the bank and broad money are used as financial development indicators. Using panel data for 38 sub-Saharan countries over the period 1986 to 2015, this study found an inverse relationship between financial development and two out of the three indicators of the real sector used in this study. Based on countries’ classification by income, the study also found that financial development hurts the real sector in all the various income groups when the real sector is proxied by industrial value-added and productivity but produces contrary results when the real sector is proxied by agriculture value-added. Government expenditure and trade openness contributed to the development of the real sector. Corruption, as one of the institutional variables, harms the real sector. This study concluded by emphasising the need for the government to ensure balanced growth between financial development and the real sector.

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Acknowledgements

The authors would like to thank the anonymous reviewers for their very helpful comments and feedback on this article. The views in this paper are authors’ own and do not necessary represent those of the affiliated institutions.

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Correspondence to Taiwo Akinlo.

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Appendix

Appendix

Appendix A

See Tables 10, 11, 12, 13, 14.

Table 10 List of the selected SSA countries
Table 11 The effect of financial development on real sector
Table 12 The effect of financial development on real sector
Table 13 The effect of financial development on real sector
Table 14 The effect of financial development on real sector

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Akinlo, T., Yinusa, D.O. & Adejumo, A.V. Financial development and real sector in sub-Saharan Africa. Econ Change Restruct (2020). https://doi.org/10.1007/s10644-020-09283-8

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Keywords

  • Financial development
  • Real sector
  • Sub-Saharan Africa
  • Productivity
  • GMM

JEL Classification

  • O16
  • O40
  • F01