Financial sector development and economic growth: evidence from Cameroon

Abstract

For decades, African economies have embarked on financial sector reforms. However, the empirical implications of these reforms have been divergent. This paper investigates the impact of financial development on Economic growth using time series data in Cameroon. This investigation was carried out using three common indicators of financial development (broad money, deposit/GDP and domestic credit to private sector). Using the Auto Regressive Distributive Lag (ARDL) technique of estimation, it was discovered that there exist a short-run positive relationship between monetary mass (M2), government expenditure and economic growth, a short run negative relationship between bank deposits, private investment and economic growth equally exists. However in the long run, all indicators of financial development show a positive and significant impact on economic growth. This paper thus confirms the existence of a positive and long-term impact of all the indicators of financial development on economic growth through bound test. It is therefore proposed that the financial reforms in Cameroon should be pushed forward in order to boost the development of the financial sector thus an increase in its role on economic growth.