Financial Development, Real Sector and Economic Growth in Sub-Saharan Africa: The Threshold Effect

This study used a threshold regression model to examine the existence of real sector threshold effects in the relationship between financial development and economic development in 38 sub-Saharan African countries from the period 1986-2015. The study identified threshold values of 31.1860, 33.8982% and 1.2241% for industrial value-added, agricultural value-added and total factor productivity respectively in sub-Saharan Africa. The study found that only when the real sector is proxied by industrial value-added that financial development has a significant impact on economic growth. The conclusion drawn from this empirical study is that financial development will only have a positive and significant impact on economic development when the growth in the real sector accompanies the growth in the financial sector. This study, therefore, recommended that the government of sub-Saharan African countries should ensure that the real sector is not below the threshold value so that financial development can bring development to the economy.