Dynamic Relationship Between Financial Sector Development and Inclusive Growth in Sub-Sahara African Countries

Abstract

This study examines the direction of causality between financial sector development and inclusive growth using panel data of 32 countries in sub-Saharan Africa (SSA) between 2000 and 2019. Findings from Dumitrescu - Hurlin panel causality test revealed that the panel of SSA’s countries and two other sub-regions (West and South African sub-regions) indicate unidirectional causality while the other two (East and Central African) show evidence of no causality. Likewise, this study observes some variations at the country-specific level where 24 out of the 32 countries selected displayed evidence of no causality, and 8 countries demonstrated evidence of unidirectional causality. Thus, the study concludes that both inclusive growth and financial sector development are too weak to cause each other in most SSA’s countries since bi-directional causality is nonexistent and recommends that policymakers in respective SSA sub-regions and countries should implement massive inclusive growth strategies and promotes relevant financial innovations, reforms, and efficiency in financial inclusion across the region.