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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Supply-Leading versus Demand-Following Hypothesis: Empirical Evidence from Three SSA Countries
Author:Odhiambo, Nicholas M.ISNI
Year:2007
Periodical:African Development Review
Volume:19
Issue:2
Period:September
Pages:257-280
Language:English
Geographic terms:Kenya
South Africa
Tanzania
Subjects:economic development
financial conditions
Economics and Trade
Development and Technology
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8268.2007.00161.x/pdf
Abstract:This study investigates empirically the direction of causality between financial development and economic growth in three sub-Saharan African countries, Kenya, South Africa and Tanzania. The study seeks to answer one critical question: Does financial development in sub-Saharan African countries exhibit a supply-leading or demand-following response? The study uses three proxies of financial development, namely the ratio of currency to narrow definition of money, the ratio of bank claims on the private sector to GDP, and the ratio of broad money to GDP, against real GDP per capita (a proxy for economic growth). It finds that the direction of causality between financial development and economic growth is sensitive to the choice of measurement for financial development. In addition, the strength and clarity of the causality evidence is found to vary from country to country and over time. On balance, a demand-following response is found to be stronger in Kenya and South Africa, whilst in Tanzania a supply-leading response is found to be dominant. The study therefore recommends that for Kenya and South Africa the real sector of the economy should be developed further in order to sustain the development of the financial sector. However, for Tanzania, there is need for further development of the financial sector in order to make the economy more monetized. Bibliogr., sum. [Journal abstract]
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