Financial stability and economic growth: a cross-country study

Abstract

The study examines the relationship between financial stability and economic growth in Africa. Using a dynamic fixed-effect model, the results reveal that financial stability impacts positively on economic growth. Specifically, the results indicate that capital adequacy, liquidity and asset quality have significant effects on the GDP growth rate both in the long and the short run. It is recommended that the agencies concerned, mainly the central banks and the governments of African countries, should pursue policies that enhance the stability of their financial systems in order to spur economic growth in their respective countries.

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