A Dissertation Submitted in Partial Fulfilment of requirements for the Degree of
Master of Science in Accounting and Finance (Msc. A&F) of Mzumbe University
This paper examines the causal relationship between financial development and
economic growth in three countries of east Africa (Tanzania, Kenya, and Uganda)
over the 1987-2013 periods
The study used annual growth rate as proxy of economic growth, thus dependant
variable. Financial development was determined by three proxies and therefore
independent variables, these proxies are; Domestic Credit to Private Sector, financial
system deposits as the ratio of total financial system deposits and Liquidity liabilities
that used to measure economic growth.
The research deployed quantitative research approach analyzing by using stata
program and the study used only secondary data .The causal relationship between
financial development (FD) and economic growth (EG) was examined by using
Vector autoregressive VAR model and Granger causality test. Phillips-Perron (PP)
tests and augmented Dick fuller test were used to test for unit root (non-stationary)
This study found that there is a bidirectional relationship between financial
development and economic growth for Tanzania, for Kenya the result revealed
unidirectional relationship running from economic growth to financial development
and for Uganda the causal relationship is only financial development which leads
Economic growth. The different results indicates that each east African country has
its own polices, regulations and laws that differ from another country. Therefore the
differences can be removed by making sure that laws, policies and regulations
formulated by Policy makers are the same in all east African countries