Does Financial Development Promote Economic Growth?Empirical Evidence From Zambia

This study sought to examine the relationship between financial development and economic growth in Zambia.The study employed quarterly time series data covering the period of 1999Q1-2015Q4.The study used broad money supply,domestic credit to private sector,and stock market capitalisation as financial development indicators together with GDP growth(which is used as a proxy for economic growth),government expenditure,population growth,and trade openness in analyzing finance-growth nexus.After establishing the stationarity of the underlying variables,the study proceeded to use Autoregressive Distributed Lag(ARDL)specification to examine cointegration and it was established that there existed a long-run cointegrating relationship among the underlying variables.The regression estimates exhibited the impacts of financial development on economic growth.The study established that broad money supply as a share of GDP has a negative and positive significant effect on economic growth in the long-run and short-run respectively,whereas domestic credit to private sector was found to have a substantial positive influence on economic growth in both longrun and short-run periods.Also,it was concluded that government expenditure and trade openness have varied and statistically significant impacts on economic growth in Zambia.The study further indicated that stock market capitalisation has a significant and positive impact on economic growth merely in the long-run,however real exchange rate consistently recorded significant positive effect on economic growth in both long-run and short-run periods.Therefore,information of stock market activities,the modalities of investments as well as the benefits of investing on the stock markets ought to be made available to the general public on regular basis.This would help domestic investors to comprehend and consider investment on the stock market.Also,it is suggested to the policymakers should concentrate on improving the efficiency of the financial system to guarantee that savings are channeled to growth-driven investment which results in long-run growth of the economy.