Financial sector development and sources of economic growth in the Southern African Development Community region
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Date
2025-06
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University of Fort Hare
Abstract
The importance of financial sector development to the economy cannot be underestimated. However, the majority of the countries in the Southern African Development Community (SADC) region have low levels of financial sector development. It is against this background that the study sought to investigate the effect of financial sector development on sources of growth in the region, utilising the Generalised Method of Moments (GMM) technique for the period from 2011 to 2021. Based on the available literature, which indicates that the major sources of growth in which financial sector development influences economic growth are total factor productivity and domestic investment, two models were estimated. The first model looked at the effect of financial sector development on total factor productivity. The empirical results revealed that when the financial sector is measured by domestic credit to the private sector, it has a positive effect on growth. However, when it is measured by the Z-score, representing stability, it was found to have a negative effect on growth. The same result was also obtained on the second model in which the source of growth was measured by domestic investment. The results from the study do highlight that there is a conflict between the growth of the financial sector and stability. This therefore suggests that authorities in their pursuit of growing the sector should also be cognisant of the importance of the stability of the sector.
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Keywords
Financial services industry -- Africa, Economic development, Africa, Southern -- Economic conditions