Financial Development and Economic Growth in Sierra Leone: Evidence from 1980-2024

Abstract

Abu Kai Kamara, Dante Bendu and Mohamed Sajor Jalloh

This study examines the relationship between financial development and economic growth in Sierra Leone from 1980 to 2024, both in the short and long term. The study uses the Autoregressive Distributed Lag (ARDL) bounds testing approach to investigate cointegration between financial development indicators and real GDP per capita using annual time-series data from the Bank of Sierra Leone and the World Bank. The results show that there is a statistically significant long-term equilibrium between economic expansion and financial development. In the long term, broad money (M2/GDP) and private sector credit have positive but negligible effects on growth, whereas lending rates and inflation have short-term negative consequences. The findings imply that, with the help of strong institutions and prudent macroeconomic management, financial development may boost economic growth. In order to increase the effectiveness of financial development as a growth engine, the report suggests interest rate adjustments, better financial inclusion, and strengthened regulatory capabilities.

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