Examining the Causal Relationship between Private Sector Development, Financial Development and Economic Growth in Sub-Saharan Africa

Abstract

The private sector is one of the important sectors within the Sub-Saharan African region due to its significant contribution to employment through the creation of jobs and the creation of value through production. Private sector development is crucial for the growth of the economy. This is because actors in the private sector contribute to productivity. It is thus important to empirically determine whether causality exists between private sector development (PSD) and economic growth. This study therefore provides insight into the causal association existing between PSD and growth. Using the Granger causality test, with secondary data for twenty-four SSA countries from 2000 to 2018, the study investigates causality between PSD, growth and FD. For Sub-Saharan Africa, this study discovers a bi-causality between PSD and economic growth. There is also a bi causality between economic growth and gross domestic savings. However, for GDS and private sector development, causality runs from GDS to private sector development only. The IRF was graphed to show how the variables of interest are impacted by shocks in other variables. This study recommends that relevant policy-makers must pursue policies that are favourable towards the development of the private sector, which has been found to result in growth in the gross domestic product in the sub-region.