Financial Deepening and Manufacturing Sector Productivity in Cameroon (1970-2018)

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Chi Aloysius Ngong, Charles O. Manasseh, Osmond N. Okonkwo, Ifeoma C. Nwakoby

Abstract

This study assesses the relationship between financial deepening and manufacturing sector productivity in Cameroon from 1970 to 2018 using Engle-Granger two step co-integration and autoregressive distributed lag (ARDL) methods. Manufacturing value added proxies manufacturing sector productivity, while credit to the private sector, broad money supply and trade openness measure financial deepening. The results reveal a long run relationship between financial deepening and manufacturing sector productivity. The error correction term shows that financial deepening and manufacturing sector productivity converge to long run equilibrium. The ARDL results indicate that credit to the private sector and broad money supply positively impact manufacturing sector productivity while trade openness negatively impacts manufacturing sector productivity in the short run in Cameroon. Following the findings, ways to improve credit channels and liquidity flow to private firms through bank’s intermediation should be encouraged by Central Bank with policies that remove bottlenecks against credit to the private sector. Hence, commercial banks and other financial institutions should provide more credit to manufacturing sector at moderate cost. The Cameroon government should encourage monetary authorities of the Central and commercial banks to create an enabling environment for prospective investors to invest in the manufacturing sector. The government should diversify financing into the capital market which is almost nonexistent. Hence, policies that promote investors’ confidence through legal framework of stock market development should be implemented.

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