Abstract:
West Africa has experienced varying degrees of financial integration with global
markets and diverse trajectories in financial sector development over the past three
decades. Hence, this study investigates the causal movement and relationships among
financial inflows, financial development and economic growth in the sub-region
between 1990-2023. Employing second-generation panel data methodologies,
including Dumitrescu Hurlin Panel Causality Tests, Cross-Sectional Dependence
Tests, Slope Homogeneity as well as second generation Unit root Tests. Descriptive
statistics reveal significant variability in economic indicators, with non-normal
distributions highlighting the complex economic landscape of the region. The Slope
Homogeneity Test conclusively demonstrates heterogeneous economic relationships
across West African countries, suggesting that uniform economic models may be
inappropriate, while cross-sectional dependence tests confirm substantial
interconnectedness among economic variables, indicating that economic dynamics
in one country significantly influence others in the sub-region. Data were sourced
data World Development Indicator (2024) and was secondary in nature. Therefore,
the study employs Dumitrescu Hurlin Panel Causality Tests to achieve the goal.Based
on the method, the study uncovers bidirectional relationships between GDP and
financial development, remittances, and portfolio investments, underscoring their
mutual reinforcement. However, foreign direct investment shows a uni-directional
catalyst for both economic growth and financial system development, as all were
found to be statistically significant at 5% level. These findings provide an impetus for
economic mechanisms of West Africa, emphasizing the need for both holistic and
integrated approaches to economic policy-making that recognize the region's
dynamics financial as well as economic system.
