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The aim of this paper is to re-examine the cointegrating and
causal relationship between financial development and
economic growth in the ECOWAS countries. To this end, we use
the Pesaran et al. (2001) approach to cointegration and the
procedure for non - causality test of Toda and Yamamoto
(1995). Data are from the World Bank (2007) and cover the
period 1960 - 2005. We show that there is a positive long -
run relationship between financial development and economic
growth in five countries, namely, Cape Verde, Cote d'Ivoire,
Ghana, Guinea and Liberia. In addition, we show that
financial development ‘leads’ economic growth in Ghana,
Liberia and Mali while growth causes finance in Cote
d'Ivoire, and a bidirectional causality in Cape Verde and
Sierra Leone. The policy implication is that Cape Verde,
Ghana, Liberia, Mali and Sierra Leone should give policy
priority to financial reform while Cote d’Ivoire should
promote economic growth.
Key words:
Cointegration, financial development, granger causality,
growth. |
