Financial Development And Economic Growth In Central African Economic And Monetary Community

The link between financial development and economic growth has been an area of interest among academicians, economists and policy makers. Although a number of studies have been done in the area, there is no consensus on the effect of financial development on economic growth and the direction of the relationship. Further, few studies have investigated the finance-growth relationship at region level. Additionally, the recent financial crisis has shown that the impact of financial development on economic growth depends on the level of development of a particularly country; hence they cannot use the same macroeconomic policy to fight against the financial crisis. Therefore, it is important that each region understands how financial system relates to economic growth in view to find the adequate macroeconomic policy that can assist during the financial crisis.In view of the above explanations, our study attempts to examine empirically the relationship between financial development and economic growth in the Central African Economic and Monetary Community(CEMAC) for the period 1980-2014. Using pooled mean group estimator(PMG) in a dynamic heterogeneous panel setting. The study finds a positively and statistically insignificant effect of financial development on economic growth in the long-run in this sample. In the short-term, we show that finance doesn?t have effect on growth.Furthermore, the trade variable contributed positively to economic growth in the long-run in CEMAC. The government expenditure has a negative effect on growth in the long-run in the sub-region.The study provides some policies suggestions for governments of CEMAC countries. In order to maintain a sustainable economic growth in this zone under study, the reforms are indispensable, reform in both sectors, financial and economic sector. The government should concentrate their expenditure on the productive sector like: education, health and more resources in infrastructures in all sectors. Policy makers of the sub-region should take dispositions to increase the efficiency of their financial sector by reducing the tax rate and encouraging people to save by raising the deposit interest rate. The trade is a strategic variable, so governments need to improve the business environment.