The role of inflation in financial development–economic growth link in sub-Saharan Africa
The impact of financial development (FD) on economic growth (EG) is well documented. However, studies on how inflation mediates the impact of FD on EG produce inconclusive findings. Meanwhile, the tripartite relationship among FD, inflation and EG is particularly crucial for sub-Saharan African coun...
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Taylor & Francis Group
2022-12-01
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| Series: | Cogent Economics & Finance |
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| Online Access: | https://www.tandfonline.com/doi/10.1080/23322039.2022.2093430 |
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| author | Muazu Ibrahim Olufemi Adewale Aluko Xuan Vinh Vo |
| author_facet | Muazu Ibrahim Olufemi Adewale Aluko Xuan Vinh Vo |
| author_sort | Muazu Ibrahim |
| collection | DOAJ |
| description | The impact of financial development (FD) on economic growth (EG) is well documented. However, studies on how inflation mediates the impact of FD on EG produce inconclusive findings. Meanwhile, the tripartite relationship among FD, inflation and EG is particularly crucial for sub-Saharan African countries given that these countries are largely inflationary on the back of under-developed financial sectors and low EG. The inconclusive evidence presented by the existing studies limits policy making. This study therefore re-examines whether inflation mediates the FD–EG nexus by utilizing a panel data obtained from 36 countries in sub-Saharan Africa. The study uses the sample splitting threshold approach to investigate this relationship. The findings identify inflation thresholds of 7.65% and 6.76% at which the impact of FD on EG changes sign. Specifically, irrespective of the indicator of FD, higher FD significantly increases EG at low inflation rates. However, beyond the estimated thresholds, the impact of FD on EG is insignificant, revealing that higher inflation does not support the growth-enhancing effect of FD. The research recommends that inflation should be kept below the identified thresholds for FD to spur EG. |
| format | Article |
| id | doaj-art-dfddf439b3684bda941a0faaf1be2d54 |
| institution | DOAJ |
| issn | 2332-2039 |
| language | English |
| publishDate | 2022-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj-art-dfddf439b3684bda941a0faaf1be2d542025-08-20T03:12:42ZengTaylor & Francis GroupCogent Economics & Finance2332-20392022-12-0110110.1080/23322039.2022.2093430The role of inflation in financial development–economic growth link in sub-Saharan AfricaMuazu Ibrahim0Olufemi Adewale Aluko1Xuan Vinh Vo2Making Finance Work for Africa (MFW4A) Secretariat, African Development Bank (AfDB), Abidjan, Côte d’IvoireLeeds University Business School, University of Leeds, Leeds, UKInstitute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City, VietnamThe impact of financial development (FD) on economic growth (EG) is well documented. However, studies on how inflation mediates the impact of FD on EG produce inconclusive findings. Meanwhile, the tripartite relationship among FD, inflation and EG is particularly crucial for sub-Saharan African countries given that these countries are largely inflationary on the back of under-developed financial sectors and low EG. The inconclusive evidence presented by the existing studies limits policy making. This study therefore re-examines whether inflation mediates the FD–EG nexus by utilizing a panel data obtained from 36 countries in sub-Saharan Africa. The study uses the sample splitting threshold approach to investigate this relationship. The findings identify inflation thresholds of 7.65% and 6.76% at which the impact of FD on EG changes sign. Specifically, irrespective of the indicator of FD, higher FD significantly increases EG at low inflation rates. However, beyond the estimated thresholds, the impact of FD on EG is insignificant, revealing that higher inflation does not support the growth-enhancing effect of FD. The research recommends that inflation should be kept below the identified thresholds for FD to spur EG.https://www.tandfonline.com/doi/10.1080/23322039.2022.2093430EGinflationthresholdfinancial developmentO47E44 |
| spellingShingle | Muazu Ibrahim Olufemi Adewale Aluko Xuan Vinh Vo The role of inflation in financial development–economic growth link in sub-Saharan Africa Cogent Economics & Finance EG inflation threshold financial development O47 E44 |
| title | The role of inflation in financial development–economic growth link in sub-Saharan Africa |
| title_full | The role of inflation in financial development–economic growth link in sub-Saharan Africa |
| title_fullStr | The role of inflation in financial development–economic growth link in sub-Saharan Africa |
| title_full_unstemmed | The role of inflation in financial development–economic growth link in sub-Saharan Africa |
| title_short | The role of inflation in financial development–economic growth link in sub-Saharan Africa |
| title_sort | role of inflation in financial development economic growth link in sub saharan africa |
| topic | EG inflation threshold financial development O47 E44 |
| url | https://www.tandfonline.com/doi/10.1080/23322039.2022.2093430 |
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