Causal Relationship between financial sector development and economic growth: a case of Zimbabwe

Abstract

This paper aims to investigate the impact of financial sector development on economic growth in Zimbabwe, the reason being that no such research has been carried out in Zimbabwe. The research utilized secondary data for the period 1995 to 2008.Granger causality test is used to test the causality between economic growth and four financial sector development indicators. Johansen co-integration approach is used to test the long run relationship between economic growth and financial sector development indicators. The paper found out that granger causality runs from economic growth to financial sector development. The results support some empirical evidence that postulates that the granger relationship runs from economic growth to financial development and is there is a positive relationship in the long run. The study provides empirical evidence that economic growth granger causes financial sector development and there are positively related in the long run. Therefore, it is important that the government of Zimbabwe should implement policies that fosters economic growth and this will subsequently promotes financial sector development