Financial development and economic growth in Namibia
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Date
2008
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The objectives of this paper are to: examine whether there is a long-run relationship between financial development and economic growth in Namibia and hence determine the direction of causality as well as the implications of such results for a financial sector policy- oriented growth in the economy. In order to test for the existence of long run relationship between the variables, the study employs a cointegration and error correction modeling (ECM) technique
The study uses quarterly data on the following variables: broadly defined money supply (M2); gross domestic product (GDP); credit to the private sector; commercial bank branches; inflation; and the openness index for the period 1993 to 2005. The degree of correlation between the financial sector development and growth does not necessarily mean the existence of a causal relationship among them; it may simply be attributed to the association of a third variable. Accordingly, a formal procedure called Granger-Causality test was applied to the variables to test for the direction of causation between variables
An empirical model for determinants of output growth with financial sector development as one of the explanatory variables is then estimated. The empirical results indicate that financial sector development is positively correlated with real GDP growth. The Granger causality test shows that the direction of causality runs from the financial development variables to GDP. Thus it is concluded that financial sector development have a positive effect on economic growth in Namibia. The study is organised as follows, Chapter 1 is the introduction, Chapter 2 reviews the recent economic developments, Chapter 3 looks closely into the Namibian financial sector, Chapter 4 explores the theoretical and literature review, Chapter 5 presents the methodology, Chapter 6 contains the empirical analysis and interpretations,while Chapter 7 comprises of the conclusions, policy implications and recommendation.
The objectives of this paper are to: examine whether there is a long-run relationship between financial development and economic growth in Namibia and hence determine the direction of causality as well as the implications of such results for a financial sector policy- oriented growth in the economy. In order to test for the existence of long run relationship between the variables, the study employs a cointegration and error correction modeling (ECM) technique
The study uses quarterly data on the following variables: broadly defined money supply (M2); gross domestic product (GDP); credit to the private sector; commercial bank branches; inflation; and the openness index for the period 1993 to 2005. The degree of correlation between the financial sector development and growth does not necessarily mean the existence of a causal relationship among them; it may simply be attributed to the association of a third variable. Accordingly, a formal procedure called Granger-Causality test was applied to the variables to test for the direction of causation between variables
An empirical model for determinants of output growth with financial sector development as one of the explanatory variables is then estimated. The empirical results indicate that financial sector development is positively correlated with real GDP growth. The Granger causality test shows that the direction of causality runs from the financial development variables to GDP. Thus it is concluded that financial sector development have a positive effect on economic growth in Namibia. The study is organised as follows, Chapter 1 is the introduction, Chapter 2 reviews the recent economic developments, Chapter 3 looks closely into the Namibian financial sector, Chapter 4 explores the theoretical and literature review, Chapter 5 presents the methodology, Chapter 6 contains the empirical analysis and interpretations,while Chapter 7 comprises of the conclusions, policy implications and recommendation.
Description
A thesis submitted in partial fulfilment of the requirements for the Degree of Masters of Science in Economics
Keywords
Economic development