Rethinking economic growth : a financial development perspective on Southern Africa

Abstract

Persistent poverty and inequality in Southern Africa call for economies to prioritise growth policies to address these issues. Theory and evidence confirms positive growth effects on poverty in developing countries. Given the paltry growth trajectory in Southern Africa, capitalizing on the theoretical underpinnings which allude to the growth spurring capability of financial development is imperative. This study sought to establish the financial development and growth nexus in Southern Africa by adopting a panel framework for 13 Southern African countries. Data spanning 26 years (1990 to 2015) for financial development, growth and other growth linked variables data was collected and analysed. The findings confirmed that financial development is not significant in explaining the variation in GDP per capita growth in Southern Africa. However, some growth linked variables were found to be significant in explaining growth in the region. Understanding the insignificance of financial development in explaining growth presents an opportunity to implement financial sector reforms and policies (financial inclusion, financial literacy and financial intermediation) that can help improve the regionÕs financial development standard. This study questioned the role of financial development in growing economies in Southern Africa, hence a redress of the social issues.