The Banking Sector and Economic Growth: Case of Madagascar

Many authors have argued that there is a link between a country's economic growth and the development of its banking sector (banks or financial markets). This study will examine the relevance of these authors' theories to the case of Madagascar. More specifically, it will examine the contribution of Madagascar's banking sector to its economic growth. Accordingly, this research conducted an empirical study of the various characteristics of the Malagasy economy and banking sector. Analysis of the Malagasy economy reveals that it is characterized by a very low growth rate that has been unstable over several periods. Furthermore, the OLS model estimation shows that Madagascar's banking sector does not contribute to its economic growth. Loans do not have a significant effect on explaining GDP. This analysis shows that the Malagasy banking sector is not truly fulfilling its role in financing the economy. Consequently, a credit policy consisting of banking sector reform has been proposed.