The causal nexus between financial development and economic growth in Kenya

This paper aims to reexamine the relationship between financial development and economic growth in Kenya over the period of 1971-2011. Since the financial sector plays a vital role in mobilizing and allocating savings into productive ventures, the core issue of this investigation remains important for developing economics. The examination is based on a Cobb-Douglas production augmented by incorporating financial development. A simulation based ARDL bounds testing and Gregory and Hansen's structural break cointegration approaches are being utilized in this study. Cointegration is being found between the series in the presence of a structural break in 1992. It is also being established that, in the long run, the development of the financial sector has a positive impact on economic growth. Here remains an important policy implication for the concerned individuals of Kenya, that is, they may emphasize on financial development to ignite economic growth.