The direction of causal relationship between financial development and economic growth in Namibia
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Date
2009
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The study determines the causal relationship between financial development and economic growth in Namibia. In order to test for existence of long run relationship between the variables, the study employs a cointegration and vector error correction model (VECM) technique. Granger causality test was applied to the variables to test for the direction of causation between variables. The study uses quarterly data for the period of 1993 to 2007. Economic growth is proxied by gross domestic product, and financial development is proxied by broadly defined money supply (M2); and credit to the private sector. The result shows that there is a stable long-run relationship between financial development and economic growth. The Granger causality test indicates that the causality runs from economic growth to financial development. The results suggest that the real sector of the economy should be developed further in order to stimulate further development in the economy through policy interventions like industrial development to diversify the economic base, enhance the performance of small and medium enterprises, and, enhance the performance of the tourism sector which has a great potential in promoting growth.
The study determines the causal relationship between financial development and economic growth in Namibia. In order to test for existence of long run relationship between the variables, the study employs a cointegration and vector error correction model (VECM) technique. Granger causality test was applied to the variables to test for the direction of causation between variables. The study uses quarterly data for the period of 1993 to 2007. Economic growth is proxied by gross domestic product, and financial development is proxied by broadly defined money supply (M2); and credit to the private sector. The result shows that there is a stable long-run relationship between financial development and economic growth. The Granger causality test indicates that the causality runs from economic growth to financial development. The results suggest that the real sector of the economy should be developed further in order to stimulate further development in the economy through policy interventions like industrial development to diversify the economic base, enhance the performance of small and medium enterprises, and, enhance the performance of the tourism sector which has a great potential in promoting growth.
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a theses submitted in partial fulfilment of the requirement for the Degree of Master of Science in Economics
Keywords
Economic development