The Effect of Financial Development on Economic Growth in Franc Zone Countries: Does Infrastructure Level Matter?

This study examines the relationship between financial development and economic growth through infrastructure. Three estimation methods are used: Feasible Generalized Least Squares (FGLS), Generalized Least Squares with Correction for Autocorrelation and Heteroscedasticity (GLS-CAH), and Least Squares with Correction for Fixed Effects and Autocorrelation (LS-FE-AC) on a sample of 14 Franc Zone countries over the period 1987-2018. The results show that financial development can contribute to economic growth by financing infrastructure projects and improving the efficiency of financial systems. Quality infrastructure can, in turn, stimulate economic growth by improving productivity, competitiveness, and the quality of life of populations. The interaction between financial development and infrastructure is positive and significant, suggesting that the effect of financial development on economic growth is enhanced by the presence of quality infrastructure. The infrastructure thresholds to be reached to benefit from a significant positive impact on economic growth are estimated at 4.527, 4.369, and 3.886 for the three estimation approaches. The recommendations of this study include investing in infrastructure, developing financial markets, improving governance, and promoting public-private partnerships.