Financial development, institutions and economic growth in sub-Saharan Africa: what is the causality?

The purpose of this article is to examine the causal relationship between financial development and economic growth, taking into account the quality of the institutional environment. The sample is made up of 20 sub-Saharan African countries over the period 1980-2015. The cointegration result reveals, through estimates by the FMOLS and DOLS, that institutions have a positive impact on financial development. Subsequently, causality tests based on the vector error correction model (VECM) show very different results across country groups: for countries with a more advanced financial system, it is financial development that induces growth; however, for the group of countries with less developed financial markets, causality is from growth to financial development, and only if there is an improvement in institutions.