Finance in the Wake of Growth: Evidence from the Democratic Republic of Congo

This study revisits the finance–growth nexus in the Democratic Republic of Congo (DRC), a highly dollarized economy characterized by shallow financial intermediation and limited access to credit. Using a Granger causality framework, the analysis examines the direction of causality between financial development and economic growth. The results provide little support for the Supply-Leading Hypothesis: private sector credit and monetary depth do not Granger-cause economic growth. Conversely, economic growth significantly Granger-causes private sector credit, providing evidence in favor of the Demand-Following Hypothesis. These findings suggest that, at the current stage of development, the Congolese financial system remains more responsive to real economic expansion than capable of independently driving it. From a development-finance perspective, the results imply that financial deepening alone may be insufficient to generate sustainable growth without complementary improvements in productive investment, infrastructure, human capital, institutional quality, innovation, and financial inclusion. The long-term policy challenge is therefore to foster a transition from a Demand-Following regime toward a Feedback regime in which financial development and economic growth become mutually reinforcing.