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Sub-Saharan African countries are still at the crossroad of economic performance. Despite quarter of a century of economic reforms, propagated by national policies and international financial agencies and institutions, sub-Saharan Africa is still lagging behind in development. Once thought of as an area with huge potential for economic growth, sub-Saharan African countries are now representing the poorest and least developed populations of the  orld due largely to skewed economic development polices which are not geared towards sustainability.
Economic development must be sustainable, implying that it should be on-going and dynamic in order to achieve the goal of poverty alleviation. A review of literature indicates that studies in this area of economics and finance have focused on the impact of finance on economic growth  arising more from developed economies. Recommendations from these works may obviously have favoured these economies to the detriment of the developing ones, sub Saharan African countries inclusive. Such policies nonetheless are growth oriented as opposed to the more development oriented policies which developing countries need at least to salvage their numerous poor. Sub Saharan African countries need not only grow but to develop especially as financial intermediation is taking place in their economies. It is therefore in this context that for economies of sub Saharan African countries to grow, studies that will examine the impact of financial intermediation on economic development should be used as the basis for formulating economic policies for the structural transformation of their economies. It is therefore against the foregoing that this study sought to examine the impact of financial intermediation on quality of life; human development; per capita real income; gross domestic product and employment creation in Sub Saharan African countries. The study adopted the ex-post facto research design. Panel data set were collated from the World Bank for 49 sub Saharan African countries for the period, 1980 – 2012. Five (5) hypotheses which state that financial intermediation does not have positive and significant impact on the quality of life; human development; per capita real income; gross domestic product growth rate; employment creation in sub Saharan African countries were formulated and tested using the Ordinary Least Squares (OLS) technique. Credit to the private sector (FIM) was adopted as the independent variable and physical quality of life index (PQLI), human development index (HDI), per capita income (PCI), growth rate of gross domestic product (GDPGR) and unemployment index (UEI) were the dependent variables for the hypotheses respectively. Capital stock (CS) and trade stock (TS) were introduced as control variables. The result emanating from this study was mixed on the development indicators. While physical quality of life and per capital income was found to have positive and significant impact on economic development, human development index, gross domestic product growth rate and unemployment creation had negative and significant impact. The study, therefore, concludes that for the economies of sub Saharan African countries to develop, emphasis should be placed on developing and implementing policies that will address critical areas like health, education,
agriculture, energy, infrastructural development etc as these are development oriented goals that can move the region forward. We thus recommend, among others, that governments in the sub region should prioritize investments in these areas. This would assist in addressing the problems
of underdevelopment observed in the region.


1.0 Background of Study

Over the past half century, developmental economics has undergone many changes as emphasis has shifted from the growth in gross domestic product (GDP) per capita (Morawetz, 1977), to employment creation (Lewis 1954; Kuzent, 1955), to basic human needs (see, Goldstein, 1985), to stabilization and structural adjustment (see, Jhingan, 1984), to human capabilities and development (Sen, 1989), and recently, to sustainable development (World Development Report, 1999-2000).
These changes in developmental economic policies over time from growth in GDP per capital to sustainable development could be attributed to the desire of nations to address the problem of poverty which is predominant in less developed economies of the world (Sub Saharan African countries inclusive). The Brundtland report of the World Commission on Environment and Development in 1987 however brought to limelight the concept of sustainable development as the report defined it as “meeting the needs of the present generation without compromising the need of the future generation” (Jhingan 2012:12). Thus, economic development must be sustainable implying that it should be on-going and dynamic in order to achieve the goal of poverty eradication.
The World Development Report (1999-2000) emphasizes the creation of sustainable improvement in the quality of life for all persons as the principal goal of development policy. According to the report, sustainable development has many objectives; beside increasing economic growth, meeting basic needs, and lifting the standard of living of citizens, it also include a number of specific goals such as; bettering people’s health and educational
opportunities, giving everyone the chance to participate in public life, helping to ensure a clean environment, promoting intergenerational equality and much more (World Commission, 1999- 2000).
Thus, meeting the need of the people in the present generation is essential in order to sustain the needs of future generations and the ability of developing economies to achieve these objectives hinges on her ability to enhance rate of savings, profit rate, rate of capital accumulation, technical improvement, equitable distribution of wealth, expansion of foreign trade and institutional changes, etc (Jhingan, 2012). Among all the factors of economic development, the rate of savings and capital accumulation has been described as one of the most important and necessary conditions to the achievement of economic development of nations.



No wonder from Smith (1776) to Kings and Levine (1993), it has been argued that finance plays an important role in the enhancement of economic development through its financial intermediation (savings and capital accumulation) function.
From the classical economic perspective, Smith (1976) regards every person within the society as the best judge of his/her self interest who should and must be left alone to pursue it to his/her own advantage. In furthering their personal interest, the interest of the society is enhanced through the invisible hand mechanism. Smith (1776) regards financial intermediation (capital accumulation) as a necessary condition for economic development and opines that the process of economic development was largely as a result of the ability of the people to save more and invest more in their country, thus, Smith (1776) summaries that in any society every prodigal appears to be a public enemy and every frugal man a public benefactor (Jhingan, 2012:87).
In line with the above statement, therefore, the level of capital accumulation through savings is principally a necessary condition for economic development of nations.

Malthus (1836) also made mention of the role of financial intermediation on economic development. However, he was concerned with the progress of wealth which means economic development that could be achieved by increasing, the wealth of a country. According to Malthus (1836), of all the factors of production which are necessary condition for economic development, it is the accumulation of capital that is the most important determinant of economic development. It was against this background that he suggests the concept of the optimum propensity to save.
This means saving from the stock which might have been destined for immediate consumption thereby adding to that which is to yield profit or in other words in the conversion of revenue into capital (Malthus, 1836)
Mills (1871) emphasizes the role of finance in the enhancement of economic development of nations. According to Mills (1871) economic development is a function of land, labour and capital and while land and labour are the two original factors of production, capital is a stock previously accumulated of the products of former labour. According to Mills (1871), the rate of capital accumulation depends upon the amount of the fund which savings can be made or the size of the net produce of industry and the strength of the disposition to save. Therefore, capital is the result of savings and savings comes from the abstinence from present consumption for the sake of future goods. Thus for nations to achieve sustainable development, there must be an effective desire to accumulate capital (Mill, 1871).
Like Smith (1776), Ricardo (1917) highlights the connection between financial intermediation and economic development however, he pointed towards the importance of capital accumulation through agricultural development and increase in the various sources of saving and profit rate. According to Ricardo (1917) capital accumulation which is a process of financial intermediation is the outcome of profits as profits lead to saving of wealth which is used for capital formulation and this is dependent on the capacity to save and the will to save.

Thus, for any economy to develop, such economy must enhance her capacity to save. Karl Marx, according to Jhingan (2012), discusses the connection between financial intermediation and economic development. Marx refers to financial intermediation which he called the surplus value as a process of economic development. According to Marx, every
society’s class structure consists of the “have’ and “have not” and states that since the mode of production is subject to change, a stage will come in the development process of nations when the forces of production will come into clash with the society’s class structure. This will eventually lead to class struggle which ultimately will overthrow the whole social system. Thus, Marx used his theory of surplus value as the economic basis of the class struggle under capitalism to building the super structure of his analysis of the process of economic development (see Jhingan, 2012).
Schumpeter (1911) also discusses the importance of financial intermediation in the enhancement of economic development. According to Schumpeter (1911), economic development is a spontaneous and discontinuous change in the channel of the circular flow, disturbances of equilibrium which forever alters and displaces the equilibrium state previously existing. Schumpeter (1911), thus states that, economic development starts with the breaking-up of the circular flow (stationary state) with an innovation in the form of a new product by an entrepreneur for the purpose of earning profit. In order to break the circular flow, the innovating  entrepreneurs are financed by bank-credit expansion (financial intermediation process). Therefore, since investment is assumed to be financed by the creation of bank credit, it increases income and prices and this help to create a cumulative expansion throughout the economy thereby inducing economic development (Schumpeter (1911).
The Keynesians were also not left out at providing a link between financial intermediation and economic development. Though there link does not analyze the problems of underdeveloped economies it had relevance to advanced capitalist countries. According to Jhingan (2012), total income is a function of total employment in a country, thus, the greater the national income, the greater the volume of employment. Again, according to them the volume of employment depends on effective demand and effective demand determines the equilibrium level of employment and income.

Therefore, for any economy, effective demand is determined at the point where demand price aggregate equals aggregate supply price. Effective demand according to the Keynesians consists of consumption demand and investment demand. While consumption demand depends on the propensity to consume, investment demand which is largely as a result of financial intermediation does not increase at the same level as the increase in income, hence, the gap between income and consumption is made up by investment which grows the economy (Jhingan, 2012).
Rostow (1960) also provides his own thought on the effect of financial intermediation on economic development. He sought and advocated a historical approach to the process of economic development. He distinguished five stages of economic development viz a viz the traditional society, the pre-conditions for take-off, the take-off, the drive to maturity and the age of high maturity consumption. According to Rostow (1960) while the traditional society is based on one whose structure is developed within the limited production functions based on pre- Newtonian science and technology, the pre-condition take-off stage is based on the idea that economic progress is possible and is a necessary condition for some other purpose, judged to be

Therefore, at this stage, new types of enterprising men come forward in the private economy, in government or both willing to mobilize savings (financial intermediation) and to take risks in pursuits of profits to modernization (economic development). Emphasizing the role of financial intermediation on economic development, Rostow (1960) summarized that: …as banks and other institutions for mobilizing capital appears, investment increase, notably in transport, communication and in raw materials in which other nations may have an economic interest. The scope of commerce, internal and external widens and modern manufacturing enterprises appear using new methods… (Rostow, 1960:6-7).
Gerschenkron (1962) also supports the importance of finance in the enhancement of economic development. According to Gerschenkron (1962), all nations were backward once, thus, to move from the traditional levels of economic backwardness to a modern industrial economy required a
sharp break with the past. Gerschenkron (1962) categorized countries into three groups on the basis of their degree of economic backwardness: advanced, moderately backward and very backward.

To put perspectives on the role of financial intermediation on the development of these economics Gerschenkron (1962) notes that advanced nations started their first stage of development with the factory as the organization lead; moderately backward nations starts with banks and extreme backward nations with government. However, as argued by Gerschenkron (1962), as a necessary precondition for development, financial institutions through the process of intermediation can play an important role in the achievement of economic development through the enhancement of capital accumulation.
Given the contributions of economists such as Smith, Ricardo, Malthus, Keynes, Rostow and Gerschenkron from 1776 to 1962, recent literature have also emphasized on the role of financial



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