The effect of financial development on economic growth in East Africa: empirical evidence from pooled mean group estimation technique

Abstract

This study examines the effect of financial development on economic growth in East Africa using the Pooled Mean Group (PMG) Estimator from 1991 to 2023. The findings revealed that financial development had a strong positive and significant short-run and long-run effect on economic growth. Furthermore, findings indicated that capital formation and labour force have a strong positive and significant effect on economic growth while external debt stock exhibits a negative and significant effect on economic growth in East Africa. Based on the aforementioned findings, policies that are oriented toward the development of the financial sector by supporting individual businesses and setting up an enabling environment that encourages investments both public and private which is envisaged as one way of enhancing economic growth. In addition, policies to establish significant investments in infrastructural development to enhance business growth, job creation, and economic growth are highly recommended.