Financial Development, International Trade and Economic Growth: The Case of Sub-Saharan Africa
Financial Development, International Trade and Economic Growth: The Case of Sub-Saharan Africa

Summary/Abstract: Among the main issues of development economics is to investigate the major determinants of economic growth. The relationship and the direction of causality between financial development and economic growth have been empirically tested in the literature. After the extensive studies in this field, it is now well recognized that financial development is crucial for economic growth [Calderon, Liu 2003] as it is a necessary condition for achieving a high rate of economic growth [Chang 2002] and has a strong positive relationship with economic growth [Mazur, Alexander 2001]. However, according to De Gregorior and Guidotti [1995] financial development significantly reduces economic growth for countries (especially in Latin America) experiencing relatively high inflation rates. Thus, this causal relationship generally remains unclear [Calderon, Liu 2003]. In the early studies of economic development, relatively little attention was paid to the financial aspects of the process and the role of the financial sector was underestimated by economists. In the 1960s, however, the relationship between financial development and economic growth started to be explored in the pioneering studies of Gurley and Shaw [1955, 1967] and Goldsmith [1969]. Following these studies a substantial amount of work has been done by different writers, such as Patrick [1966], Khatkhate [1972, 1988], McKinnon [1973], Shaw [1973], Fry [1978, 1986, 1988], Gupta [1984] and Wijnbergen [1982, 1985]. The relationship between financial development and economic growth has been further researched in the recent studies of Mazur and Alexander [2001], Chang [2002], Calderon and Liu [2003], Jenkins and Katircioglu [2009], and Katircioglu et. al [2007].

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