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Exercising fiscal prudence in periods of deteriorating fiscal balance requires sound policies which promote debt sustainability. This paper estimates a dynamic cross-country model and investigates the impact of domestic debt on economic growth and private sector credit in a panel of 21 sub-Saharan African (SSA) countries over the period 1985 to 2010. System-GMM results reveal a non-linear relationship between domestic debt and economic growth, characterized by a maximum turning point of 11.4 per cent of GDP. In addition, domestic debt is found to crowd out private sector credit by an elasticity of negative 0.3 per cent of GDP, deterring capital accumulation and private sector growth. These findings underscore the need for effective debt management strategies which incorporate debt ceiling to limit domestic indebtedness, as well as the design of financial policies which enhance credit availability, promote fiscal discipline and deepen domestic debt markets on the continent. [ABSTRACT FROM AUTHOR]

This paper re-examines the long-run finance-growth nexus in sub-Saharan Africa (SSA) using data from 17 countries over the period 1975-2005. We apply error correction-based panel cointegration tests that take into account cross-sectional dependence among countries. Our results - unlike a previous study using the same data - indicate the existence of a long-run relationship between financial and economic development in SSA countries. Moreover, our results clearly show that the long-run causality runs from financial to economic development, although a muted support for the reverse causal impact is observed when financial development is measured by the percentage of liquid liabilities in GDP. The estimated long-run parameters measuring the finance-growth link are positive and statistically significant. Therefore, our results strongly support policies aimed at developing the financial sector in SSA in order to promote long-run economic development. [ABSTRACT FROM AUTHOR]

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? Using three proxies of financial development against real GDP per capita (a proxy for economic growth), the study 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. [ABSTRACT FROM AUTHOR]