A large body of literature has examined the importance of financial development in ameliorating government intervention in money and credit markets. They argued that financial repression has led to inefficient allocation of resources, increased the segmentation and fragmentation of financial markets, reduced the availability of loanable funds, constrained investments, and stagnated the economy. These issues have taken force following the seminal work of McKinnon Shaw (1973), who provides the basis for analysing financial sector development and outlining policy implications in stimulating economic development. They proposed the importance of interest rate development and the elimination of all forms of financial repression in order to enhance economic growth.
A varied set of studies have seemed to reach a general consensus that financial development enhances economic growth in Sub Saharan Africa. However there have been contradictory cases as to its magnitude. Some authors have indicated the positive effects of finance growth nexus while others have concluded that financial development induces excessive risk taking, increases macroeconomic volatility and leads to financial crisis. By undertaking systematic review of the literature and by using methodical and replicable methods of synthesising the evidence through meta- analysis, this thesis has uncovered positive effect of financial development on economic growth in SSA.
By reviewing 75 empirical studies with 602 estimates to find the combined overall effect, our finding notes a positive albeit weak effect of the finance growth relationship although it confirms the presence of a positive publication bias. The effect found is smaller than what has been presented by many other studies. Moreover, the fixed and random effects revels that the models are correctly specified, however on performing robustness check, the Hausmann test indicates that Random effect model is preferred to Fixed effect model.