The dynamic relationship between financial development and economic growth: New evidence from Zimbabwe

Munyanyi, Musharavati Ephraim (2017): The dynamic relationship between financial development and economic growth: New evidence from Zimbabwe.

Abstract

This study seeks to examine the causal relationship between financial development and economic growth in Zimbabwe, and it follows the works of Furqani and Mulyany (2009). Two models of financial development and economic growth are constructed for the Zimbabwean economy. Time series data is used; all variables are at their end period rates and are all in yearly frequencies. The data set stretches from the year 1965 to 2015, giving a total of 51 observations. According to the results, the direction of causality between these two variables is quite sensitive to the choice of measurement for financial development in Zimbabwe. In consideration of the result findings, the study concludes that the relationship between financial development and economic growth in Zimbabwe confirms the demand-following hypothesis and is through bank deposits. In essence, financial development in Zimbabwe does not automatically guarantee a boost in economic growth. Therefore, the study then suggests that the Zimbabwean government should gear its policies toward boosting its economic performance so as to strengthen and develop its financial sector in the process.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial Development, Economic Growth, Zimbabwe, ARDL, Supply-leading hypothesis, Demand-following hypothesis, Toda and Yamamoto Granger Causality Analysis
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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