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Chapter Six Summary and Conclusions andRecommendations
6.1 Summary and Conclusion
This research sought to establish the link that exist between financial development andfinancial stability on economic growth in a sample of 48 countries of SSA over theduration of 1970–2017. Dynamic panel data techniques were applied for the study.Generalised Methods of Moments was applied to estimate the parameters of the chosenmodels.
The findings from equation (4) showed that, financial development negatively affectseconomic growth. However, the results from the dynamic panel model showed that thecoefficient in equation (5) were negative and positive,respectively and both were statistically significant which shows a U-shape. Thenonlinearity of financial development and economic growth was further confirmed bySasabuchi-Lind-Mehlum test of U-shaped profiles. The findings also showed that,financial stability measured by liquid liability had an inverse relationship on economicgrowth, which is statistically significant. When the full model was run, financial stabilityremoved the effect of financial development on economic growth. This means that,economic growth will be independent on financial development. The ‘more finance harmeconomic growth’ supposition has been challenged by this study but it’s in consonancewith Levine (2003) hypothesis.
Moreover, there exist granger causality between financial development, financialstability and economic growth which is bidirectional.
Furthermore, trade openness and investment positively affect the growth of theeconomy of SSA. Inflation showed a negative relationship on economic growth, whichcontradicts Tobin (1965) theory but supports Stockman (1981) view on inflation andeconomic growth instead. Wagner’s Law was confirmed in the study as governmentexpenditure and the square of government expenditure showed positive and negativesigns respectively.
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