Financial Development, Economic Growth, and the African Union’s Agenda 2063

ABSTRACT This article evaluates the role of financial development in achieving the objectives of the African Union’s Agenda 2063, especially its income per capita growth goal and leveraging domestic resource mobilization to finance the continent’s development needs. It uses panel data for 1995–2020 and applies a system generalized method of moments as the econometric technique. The findings indicate that promoting financial development can speed up the achievement of key Agenda 2063 expected transformational outcomes, in particular the continent’s real income per capita growth. Based on the estimation of short-term and long-term elasticities of financial development with respect to economic growth, a counterfactual simulation shows that if credit to the private sector as a percentage of GDP could increase from 4.36%, one of the lowest country values in the sample, to 54.03%, the corresponding GDP per capita could increase from its current level of USD 523 to USD 633.18 in the short-term and to USD 4,840 by the end of 2063. The article contributes to closing the gap of empirical studies on Agenda 2063.