Financial Liberalisation and Economic Growth in the SADC

Attaining high levels of economic growth and development has been one the goals of the Southern African Development Community (SADC). This paper investigates the relationship between financial liberalisation and economic growth in SADC countries. Annual data for the 15 SADC countries for the period 1985-2011 was used to develop a fixed effect model, generalised method of moments (GMM) as well as the fully-modified OLS (FMOLS) cointegration test. The results revealed that there is a positive relationship between financial liberalisation and economic growth in SADC but there is no long-run relationship between the two variables. This suggests that the relationship between financial liberalisation and economic growth is a short-run phenomenon. It is recommended that the SADC adopt measures to increase the level of financial openness in the region in order to increase economic growth. However, prior to the increase in the level of financial openness, well-defined property rights and a sound regulatory framework should be in place to monitor the financial liberalisation process in order to avoid financial crises.

Working paper 516
1 May 2015
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