Chapter 1 Introduction
Niger's economic growth in the past decades has been
relatively modest and was below the population growth rate, in the early 1960s
through to the late 1970s economic growth was weakened by series of droughts
that adversely affected the agricultural sector (accounting 40 percent of Niger
GDP). From 1979 to 1982, economic growth was strengthened due to the world
demand for uranium (Niger's main export product). This improved the terms of
trade and raised export revenues base of the country. However, this strong
growth was short lived due to the collapse of the global uranium price in the
early 1980s, causing and accelerating prolonged recession. Although the 1994
devaluation of the CFA1 franc improved the country's external
competitiveness, real GDP growth was too low to boost per capita income; IMF
(2007); Ministry of Finance and economy of Niger (2006).
Over the years, the study of economic growth has become one of
the hottest research areas due to the strategic implications of economic growth
to national development. Modern theories on economic growth offer several
explanations to this; Katheline (2000). According to the classic definition of
François Perroux (1981), economic growth is «an increase in the
capacity of an economy to produce goods and services, compared from one period
of time to another''. In practice, gross domestic product (GDP) is used to
measure economic growth and the rate of economic growth is evaluated by the
rate of change of GDP. The financial sector is an important contributor to GDP
in every economy. Therefore, the level of growth and development of an economy
is tied partly to profound reforms made in the financial and monetary
structures as well as policy interventions. Changes in the financial sector are
fundamental and vital for these reforms due to its role in spreading risk and
mobilizing savings. It is therefore imperative to highlight the contributions
of this sector to economic growth. Nonetheless, economic theories are divided
on the importance of this sector in economic growth; Bagehot (1873); Hicks
(1969); Goldsmith (1969); Schumpeter (1912); Robinson (1952); Lucas (1988).
1 Local currency share by an eight former French
colonies in West Africa
Consequently, two main hypotheses are advanced whose central
issue is whether or not the financial sector supports economic development. The
first is led by Bagehot and others; Bagehot (1873); Mackinnon (1973); Shaw
(1973); and Schumpeter (1912). They highlight the active role of the financial
sector in promoting economic growth; Robinson (1952) and Lucas (1988) on the
other hand believe there is no relationship between the financial sector and
economic growth.
Crises in the banking sector in 1980s resulted in collapse of
banks in developing countries especially in Africa; particularly, south of the
Sahara. It forced the West African and Monetary Union (WAEMU) countries (among
which Niger is a member) to engage in financial liberalization advocated by
researchers as an intervention measure; McKinnon and Shaw (1973). This
intervention, as envisaged at the time, would allow the recovery of the banking
and the financial sectors and in fact, propel the growth of the economy.
Unfortunately, the intervention has not been successful due to the fact that
the financial sector is highly concentrated with higher intermediation margins;
resulting in excess liquidity which has adverse effects on banking efficiency;
Igué (2006).
A developed financial sector enhances economic growth, by
promoting and mobilizing savings and providing information on investments
opportunities so that resources can be channeled to productive ventures. It
monitors the disbursement of funds, promotes trading, diversification and
management of risk as well as facilitating the exchange of goods and services
leading to economic growth; Levine (1997, 2004).
The objective of this study is to investigate whether the
development of financial sector in Niger in the past 40 years has contributed
to economic growth or not. Empirically, real GDP was used to indicate economic
growth; two variables were used to indicate financial development. Financial
deepening M2/GDP denoted by FD, and credit to the private sector to GDP by CP.
Based on these, investigation to determine whether or not there was any
relationship between financial development and economic growth in Niger was
done.
1.1. Motivation
There have been some studies on the financial development and
economic growth in some WAEMU countries, however to the best of my knowledge
there has not been any report in the case of Niger. Its financial sector has
not been given the necessary attention in research studies as an important
indicator of economic growth. Hence, the need to fill this research and
academic gap is of paramount importance. This study therefore, aims at
analyzing the relationship between the financial development and economic
growth of Niger and providing implicit and explicit policy suggestions that may
be adopted by policy makers to promote financial development and economic
growth.
| 
