Causality Between Financial Development and Economic Growth: Evidence from Sub-Saharan Africa

The relationship between economic growth and financial development has been one of the most researched topics. However, Consensus is not reached among researchers as far as empirical studies are concerned. The objective of this study is to examine the direction and significance of causality between these two variables. The study is based on dynamic panel data analysis for 28 sub Saharan African countries for the period 2001-2020.In particular, the two step System GMM regression model was used to examine the nexus between while financial development and Economic growth. After conducting Granger panel Causality test, it was found that the causality between these two variables is bidirectional and the relationships are found to be positive. Therefore; Sub-Sahara countries recommended increasing financial development through allowing foreign investors investment in financial sector, creating synergies among financial intermediaries, expanding infrastructure required financial sector and encouraged to have stock markets. Key terms: Causality, Economic Growth, Financial Development, system GMM, Granger panel Causality, Sub-Saharan Africa