Financial sector development and economic growth in the Southern African Development Community region

Abstract

Attaining high levels of economic growth and development has been one the goals of the Southern African Development Community (SADC). This paper investigates the relationship between financial liberalisation and economic growth in SADC countries. Annual data for the 15 SADC countries for the period 1985-2011 is used to develop a fixed effect model, system generalised method of moments (GMM). The results reveal that there is a positive relationship between financial liberalization and economic growth in SADC. However, in the long-run financial liberalisation has a positive but insignificant impact on economic growth. It is thus recommended that the SADC adopt measures to increase the level of financial openness in the region in order to increase economic growth. Prior to the increase in the level of financial openness, well-defined property rights and a sound regulatory framework should be in place to monitor the financial liberalisation process in order to avoid financial crises and ensure that the benefits are long-term.