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This paper examines the causal relationship between financial development and economic growth using data for 17 countries in Sub-Saharan Africa. The analysis is conducted using panel cointegration and causality tests which take account of heterogeneity between countries which arises as a result of different country intercepts and varying regression coefficients slopes across countries. The results show that there is homogenous bi-directional causality between financial development and economic growth. This result is robust to alternative measures of financial development and implies that for these Sub-Saharan African countries, both the real and financial sectors are complementary to each other and their simultaneous development should be encouraged. Copyright © 2010 John Wiley & Sons, Ltd.
Babajide Fowowe (Thu,) studied this question.