Abstract:

This paper reviewed the causal relationship between financial development and intermediation on investment and economic growth in Egypt, Nigeria and South Africa for the period from 1960 to 2013 using time series approach. Vector auto-regression and vector error correction models were used to examine the pattern of statistical causality between the selected measures of activities in the financial and real sector. The results support Schumpeter’s theory of economy development of financial development being a driver of economic growth. Further findings show that financial development causes economic growth through both increasing resources for investment and enhancing efficiency. Furthermore, to enhance long-term economic growth, government and players in this sector need to set up policies to stimulate saving and investment in their respective countries, e.g. increasing of saving interest rate.