Financial development and growth nexus
A dynamic causality linkage
Keywords:
Keywords: financial development, interest rate liberalisation, economic growth, data, bounds test, autoregressive distributed lag, South Africa.Abstract
Abstract
Purpose: This study investigated the relationship between financial development and economic growth in South Africa using the annual time series data (1980 to 2022) from the South African Reserve Bank and Quantec Easy Data.
Method: The study employed both the cointegrated autoregressive distributed lag (ARDL) and the Granger causality approach for the analyses.
Results: The unit test results revealed that the variables were stationary and nonstationary at level, implying a mixture of I(0) and I(1), hence the ARDL approach. The cointegration analysis revealed that the variables are cointegrated, which means there is a long run equilibrium relationship among them. Furthermore, the Granger causality test results revealed that causality runs from GDP to interest rate liberalisation or vice versa.
Originality/relevance: This study took a different angle by splitting financial development into four proxies and used interest rate liberalisation as an additional variable in the system.
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