Financial Sector Development and Economic Growth: Evidence from Zimbabwe
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Date
2013
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Publisher
EconJournals
Abstract
The relationship between financial system development and economic development has
attracted interest of a number of researchers all over the world, however institutional differences and
capital allocation variations between and within economies, make it very difficult to generalize
findings and thus increasing the need for country-specific studies. This study examines the causal
relation between financial system development and economic growth from a Zimbabwean perspective,
based on two inter-related broad aims, the first being the established of cointegration relationship
between the two and the ultimate direction of the causal relationship. Using multivariate Granger
causality test the study finds existence of demand following financial development in Zimbabwe, there
is unidirectional causality from economic growth to financial development. Financial system
development is therefore an outcome of the pressure for institutional development in capital markets
and introduction of modernized financial instruments. As such policy concern should focus on trade
liberalization and other related activities in order to spur economic growth, since financial system
development is a passive reaction to economic growth. Such policies might include investment
promotion and removal of barriers for foreign investments.
Description
This is an Open Access article distributed under the terms of the Creative Commons Attribution License
(http://creativecommons.org/licenses/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium,
provided the original work is properly cited.
Keywords
Financial system development, Economic growth, Poverty alleviation, granger causality
Citation
Ndlovu, G. (2013) ‘Financial sector development and economic growth: Evidence from Zimbabwe’, International Journal of Economics and Financial Issues, 3(2), pp. 435–446.