Financial development and economic growth: Empirical evidence from Namibia (1990Q1-2011Q4).

Abstract

I attempt to empirically establish the relationship between financial development and economic growth in Namibia using the cointegration framework. The main objectives of the article are to econometrically determine the nexus between financial development and economic growth using multivariate Granger causality tests, impulse response functions and variance decomposition, as well as propose some policy alternatives for the policy makers. The article contributes to macroeconomic literature on the financial development-economic growth relationship given the fact that it is one of the few researches on the same topic ever done on Namibia. The article finds that there is a unidirectional relationship between financial development and economic growth in Namibia running from economic growth to financial development. The findings imply that Namibia realises financial sector development when the economy grows and not the other way round. The fact that the financial services sector is not significantly influencing economic growth in Namibia is a real cause for concern which implies that either the banking sector is too small to have any significant impact on the economy or it is uncompetitive and therefore inefficient. The article recommends that one way of reforming the financial sector in Namibia is to subject it to some form of competition through the licensing of new banks, of course, taking into account the size of the Namibian market.