FINANCIAL DEEPENING, REGIONAL FINANCIAL CONTAGION AND ECONOMIC GROWTH: EVIDENCE FROM EAST AFRICA

Abstract

Economic disruptions within the financial system has often resulted from financial contagion which spread across Economies in the same region. This study examines the effects of financial development and financial contagion as they exert varying degree of impact on Economic growth within East Africa for the period (1985 to 2021). The study utilizes secondary data on seven (7) selected East African Countries. Analysis was conducted based on Panel unit-root test, Panel Cointegration, Panel Causality and Cross-Sectional dependence tests. The study found that Financial Contagion has a negative and statistically significant impact on economic growth in Eastern Africa this spread within the East African Sub-region. Causality was also found to be running in one direction within East Africa which is attributed to the under developed nature of the financial system within the east African Economies studied. The study suggests that favorable exchange rate policies and liberalized interest which will increase efficient allocation of credit to the productive private sector, these policies should be intended towards improving accessibility and affordability of credit to the productive private which will maintain these economies on the path of sustainable economic growth.