Abstract

The aim of this paper is to re-examine the cointegrating and causal relationship between financial development and economic growth in the ECOWAS countries. To this end, we use the Pesaran et al. (2001) approach to cointegration and the procedure for non - causality test of Toda and Yamamoto (1995). Data are from the World Bank (2007) and cover the period 1960 - 2005. We show that there is a positive long - run relationship between financial development and economic growth in five countries, namely, Cape Verde, Cote d'Ivoire, Ghana, Guinea and Liberia. In addition, we show that financial development ‘leads’ economic growth in Ghana, Liberia and Mali while growth causes finance in Cote d'Ivoire, and a bidirectional causality in Cape Verde and Sierra Leone. The policy implication is that Cape Verde, Ghana, Liberia, Mali and Sierra Leone should give policy priority to financial reform while Cote d’Ivoire should promote economic growth.

Key words: Cointegration, financial development, granger causality, growth.