Effect of Financial Development on Economic Growth: Does Inflation Matter? Time Series Evidence from the UEMOA Countries

Abstract

An important issue in the finance and growth literature is whether the strength of the relationship between finance and growth may depend on inflation rate. This paper uses time-series data to examine this evidence for seven African countries. The technique of principal component analysis is used to construct an overall index for financial development. This summary measure is used to estimate nonlinear growth equations. The empirical findings did not provide significant evidence of nonlinearity in the finance-growth relationship. Financial development has no significant effect on economic growth regardless of the level of inflation.

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