Spatial Centrality in the Finance-Growth Nexus: Panel Data Evidence from EAC and SADC Countries.

Alananga, Samwel S. (2022) Spatial Centrality in the Finance-Growth Nexus: Panel Data Evidence from EAC and SADC Countries. Masters thesis, The Open University of Tanzania.

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Abstract

Finance-growth nexuses through extensively studied, the empirical observations are still varies across countries and regions. The central place theory and the theory of money and space provide some prospects for harmonised solutions. This study examines the finance-growth nexus in Southern African Development Community (SADC) and East Africa Community (EAC) countries based on three panel error correction ARDL models and one Panel Smooth Transition Regression (PSTR) model where centrality was used as regime switching variable. Aggregate data was obtained from the World Development Indicators. The findings suggest that the finance-growth nexus are generally negative in centre countries and positive in the periphery. At the regional integration level, it is clear that finance-growth causal direction is unidirectional regardless of whether a country uses broad money growth or domestic credit to the private sector except for SADC and centrally located countries. The regime switching effect of centrality is statistically significant with finance-growth nexus being negative in centre countries and positive in the periphery an observation that supports the Convergent Growth Hypothesis (CGH) that countries in the extreme periphery are catching up to centres within their respective regions in terms of GDP growth through FSD. Based on these observations EAC countries can positively benefit from expanded monetary base while SADC require improved economic infrastructure to benefit from the same. Keywords: Spatial Centrality, Spatial Proximity, Growth-Finance Nexus, Economic Growth.

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