Financial sector development and economic growth in Southern African Customs Union (SACU)

Abstract

This study presents an analysis of the impact of financial sector development on economic growth with evidence from the Southern African Customs Union (SACU). Different measures of financial sector development are utilized, and these are: two measures from the banking sector and two from the capital market. Economic growth is measured using real GDP per capita. Panel data analysis is utilized and concludes that financial sector development, measured by domestic credit to private sector and stocks traded as a percentage of GDP, has a positive and significant effect on economic growth. The study also recognizes the importance of both the banking sector and the capital market in financial sector development. Thus it is recommended that SACU countries should continue taking measures that promote the development of the financial sector, and it would be beneficial for the SACU countries to identify the missing financial institutions and take action to fill them. For example, establishment of a stock market in Lesotho in future.