Communication links, Productivity, knowledge transfers, growth and income distribution

In this study, we show that banking development, communication links, productivity and income distribution exert a statistically and economically significant positive impact on local economic growth. This effect becomes more pronounced when the financial sector is more liberalized and deregulated. Preceded by the global changes that occurred since the mid-1980s and 1990s, the world has seen continued economic liberalization, increasing privatization and gradual loosening of credit/capital controls by states. The lifting of state controls in the banking sector in the 1980s and 1990s, created a more integrated and competitive financial industry ensuring efficient allocation of bank credits to productive areas. The economic thinking behind all this is that the financial entities, functioning under liberalized monetary regimes operate at higher levels of efficiency and productivity. Productivity improvements may result from different sources, yet the notion that the private sector’s intention to maximize profit leads to productivity improvement is one of the fundamental ones. Put it differently; a deregulated financial system is viewed as an appealing society to invest. Using data from 14 Sub Saharan African Countries (SSA), we examined the growth effects of banking development, communication links, productivity and income distribution over the period 1990 – 2013. We find evidence of significant growth effects of banking development in SSA on industrial components of GDP. Growth in agricultural GDP is positive but not significant