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The Growth Effects of Financial Development Over Economic Cycle in South Africa
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Author(s): Naser Yenus Nuru (Adigrat University, Ethiopia)and Hayelom Yrgaw Gereziher (Adigrat University, Ethiopia)
Copyright: 2021
Pages: 17
Source title:
Handbook of Research on Institution Development for Sustainable and Inclusive Economic Growth in Africa
Source Author(s)/Editor(s): Evans S. Osabuohien (Covenant University, Nigeria), Emmanuel A. Oduntan (Covenant University, Nigeria), Obindah Gershon (Covenant University, Nigeria), Olaronke Onanuga (Covenant University, Nigeria)and Oluyomi Ola-David (Covenant University, Nigeria)
DOI: 10.4018/978-1-7998-4817-2.ch007
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Abstract
This study examines the effects of financial development, proxied by domestic credit, on growth for South Africa across the states of the economy over the sample period 1970Q1-2019Q3. To address this point, the authors use Jorda's local projection method to generate impulse response functions for this small developing open economy. The shocks, however, are identified by applying short-run contemporaneous restrictions in a vector autoregressive model based on Cholesky identification scheme. The states of the economy are determined by a threshold variable, namely output growth. The results indicate that one standard deviation shock in domestic credit leads to a significant increment in output in this economy. This effect, though, is a bit pronounced in recession than the expansion state. One standard deviation shock in domestic credit leads to around 0.8 and 0.5% increment in output in recession and expansion states at the fourth quarter and on impact, respectively. The results are also robust to an alternative proxy variable of financial development.
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