Multidimensional analysis of finance-growth nexus in Africa: evidence from a panel ARDL model

Abstract We investigate the relationship between financial development and economic growth across 30 African countries from 2000–2020 using a panel ARDL model. We focus on four dimensions of financial development – financial deepening, efficiency, liquidity, and stability. While financial efficiency and deepening measures lead to positive economic growth, liquidity and stability measures of financial development significantly hinder growth. The effect of the financial sector development on economic growth is income dependent such that the effect is more evident in upper middle-income countries. Our findings suggest that a one-size-fits-all approach is insufficient, and policymakers should analyze different dimensions of financial development and incorporate regional and income contexts.