Untangling the finance–growth relationship in emerging economies: evidence from bootstrap panel Granger causality

This study employs the bootstrap panel Granger causality approach to re-examine the causal relationship between financial development and economic growth in 10 Sub-Saharan African lower-middle-income countries over 1990–2023. The results provide evidence in support of the demand-following and supply-leading hypotheses, as well as instances of non-causality, reflecting considerable heterogeneity across countries. At the aggregate panel level, however, a unidirectional causal relationship is observed running from financial development to economic growth, lending support to the supply-leading hypothesis. The panel-level result is best interpreted as an average effect that reflects the dominance of the supply-leading pattern in the majority of countries rather than its uniform applicability across the sample. The findings suggest that financial sector policies should be conditional on country-specific structural and institutional features, rather than relying on uniform prescriptions that assume a single causal direction across economies.