An Analysis of the Impact of Financial Sector Reforms on Economic Growth in Cameroon

Abstract

The ultimate task of this study is to examine the nature and extent of the influence which financial sector development, resulting from the financial sector reforms implemented in Cameroon has on the economic growth of the country from 1980 to 2015. The evaluation covers the roles of three key financial sector indicators (the ratio of broad money supply to GDP, the banking assets ratio, and the interest rate spread) each of which reflects a different facet of financial sector development.  To achieve the best needed results we tested and adjusted the data to obtain stationarity. Thereafter we proceeded to determining the quantitative relationships between the dependent and the independent variables with the use of the Vector Autoregression (VAR) technique. Parameter estimates were empirically tested. We found out that all the financial sector development variables tested were economically and statistically relevant in at least one of the four VAR equations generated while in two of the four VAR equations the values of the adjusted R2 indicate that more than 70% of variations in the current real GDP in Cameroon is accounted for by the lagged financial sector development indicators included in the models. Based on the above results we conclude that: there exist a strong positive long run relationship between financial sector development and economic growth in Cameroon. This result confirms that creating the conditions for a deep and efficient financial system can contribute robustly to sustained economic growth in Cameroon. Based on the findings, it is suggested that. Based on the findings of this study, we recommend continuous efforts to enhance financial intermediation, deepen the Douala stock exchange market and fully liberalize interest rates in the country.

Keywords: Financial Liberalisation, Financial Repression, Financial System, Financial deepening


Article Review Status: Published

Pages: 1-11 (Download PDF)

Creative Commons Licence
This work by European American Journals is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License