Nexus between financial innovation and economic growth in Lesotho: evidence from ARDL and nonlinear ARDL approaches
by Moeti Damane; Lira Peter Sekantsi
International Journal of Financial Innovation in Banking (IJFIB), Vol. 3, No. 1, 2021

Abstract: This paper sets out to explore the relationship between financial innovation and economic growth in Lesotho using time series data spanning 1980-2016. The autoregressive distributed lag (ARDL) bounds testing approach is applied to gauge long-run cointegration while the nonlinear ARDL (NARDL) model is used to test validity of short and long-run symmetric effects of financial innovation on economic growth. Results of the bounds tests revealed existence of long-run cointegration between financial innovation and economic growth in Lesotho. Positive changes in financial innovation related positively with economic growth in the long-run but had a statistically insignificant impact in the short-run. Furthermore, negative changes in financial innovation were found to have no significant impact on Lesotho's economic growth in the short and long-run. The Government of Lesotho is recommended to foster greater financial innovation in the financial system to assist financial services expansion and efficient financial intermediation to support sustainable economic growth.

Online publication date: Wed, 12-May-2021

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