Does proximity matter? The effect of financial sector development on economic growth in the EAC and SADC regional blocs

Samwel Sanga Alananga1, Felicican Mutasa2
1 Ardhi University
2 Open University of Tanzania

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This study examines the finance-growth nexus among countries in the Southern African Development Community and East Africa Community regional blocs. We aim to see if small economies can rely on expansionary monetary policies to stimulate economic growth given the illusive nature of such policies. The panel error correction model is applied to analyze the aggregated data, which were obtained from the World Development Indicators and the Comité Européen d'Etudes des Polyphosphates. The results indicate that proximity to trading giants jeopardizes the freedom to use monetary expansionary policies among relatively small countries. If such policies are adopted, it will be a significant impact on countries located in regions where trading powers are evenly distributed.

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