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Financial development and economic growth: evidence from Lesotho, 1981 - 2022
This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the This research explores the significant impact of f...
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| Format: | Thesis |
| Language: | English English |
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School of Economics
2026
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| _version_ | 1867614214135218176 |
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| access_status_str | Open Access |
| author | Nteso, Ntsane |
| author2 | Nikolaidou, Eftychia |
| author_browse | Nikolaidou, Eftychia Nteso, Ntsane |
| author_facet | Nikolaidou, Eftychia Nteso, Ntsane |
| author_sort | Nteso, Ntsane |
| collection | Thesis |
| description | This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the Autoregressive Distributed Lag (ARDL) approach to cointegration, specifically applying the ARDL bounds-testing methodology. To capture the multifaceted aspects of financial development, four distinct proxy variables are used: ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions as a percentage of GDP, deposit money bank assets to deposit money bank assets and central bank assets and domestic credit to private sector as a percentage of GDP divided by domestic credit to private sector as a percentage of GDP plus credit to government and state-owned enterprises as a percentage of GDP. Initially, this study explores the influence of financial development on economic growth using all four proxy variables. Interestingly, only one variable - the ratio of liquid liabilities to GDP - emerges as statistically significant. However, its impact is negative in both the short and long run. Consistent with King and Levine's (1993) suggestions about the channels through which financial development affects economic growth, this research further explores the impact of the ratio of liquid liabilities to GDP on two crucial growth components: total productivity growth and the accumulation of physical capital. The results present a convincing narrative, revealing that the log of ratio of liquid liabilities to GDP has a negative impact on Lesotho's growth while having no significant effect on either total factor productivity growth or physical capital accumulation. This paper contends that financial liberalization in a poorly regulated environment may have contributed to this outcome. Consequently, the evidence suggests that the country may not be fully leveraging the potential benefits of financial development to drive economic prosperity.(ARDL) approach to cointegration, specifically applying the ARDL bounds-testing methodology. To capture the multifaceted aspects of financial development, four distinct proxy variables are used: ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions as a percentage of GDP, deposit money bank assets to deposit money bank assets and central bank assets and domestic credit to private sector as a percentage of GDP divided by domestic credit to private sector as a percentage of GDP plus credit to government and state-owned enterprises as a percentage of GDP. Initially, this study explores the influence of financial development on economic growth using all four proxy variables. Interestingly, only one variable - the ratio of liquid liabilities to GDP - emerges as statistically significant. However, its impact is negative in both the short and long run. Consistent with King and Levine's (1993) suggestions about the channels through which financial development affects economic growth, this research further explores the impact of the ratio of liquid liabilities to GDP on two crucial growth components: total productivity growth and the accumulation of physical capital. The results present a convincing narrative, revealing that the log of ratio of liquid liabilities to GDP has a negative impact on Lesotho's growth while having no significant effect on either total factor productivity growth or physical capital accumulation. This paper contends that financial liberalization in a poorly regulated environment may have contributed to this outcome. Consequently, the evidence suggests that the country may not be fully leveraging the potential benefits of financial development to drive economic prosperity. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/42564 |
| institution | University of Cape Town (South Africa) |
| language | English eng |
| last_indexed | 2026-06-10T12:48:28.976Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2026 |
| publishDateRange | 2026 |
| publishDateSort | 2026 |
| publisher | School of Economics |
| publisherStr | School of Economics |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/42564 Financial development and economic growth: evidence from Lesotho, 1981 - 2022 Nteso, Ntsane Nikolaidou, Eftychia Autoregressive Distributed Lag This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the Autoregressive Distributed Lag (ARDL) approach to cointegration, specifically applying the ARDL bounds-testing methodology. To capture the multifaceted aspects of financial development, four distinct proxy variables are used: ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions as a percentage of GDP, deposit money bank assets to deposit money bank assets and central bank assets and domestic credit to private sector as a percentage of GDP divided by domestic credit to private sector as a percentage of GDP plus credit to government and state-owned enterprises as a percentage of GDP. Initially, this study explores the influence of financial development on economic growth using all four proxy variables. Interestingly, only one variable - the ratio of liquid liabilities to GDP - emerges as statistically significant. However, its impact is negative in both the short and long run. Consistent with King and Levine's (1993) suggestions about the channels through which financial development affects economic growth, this research further explores the impact of the ratio of liquid liabilities to GDP on two crucial growth components: total productivity growth and the accumulation of physical capital. The results present a convincing narrative, revealing that the log of ratio of liquid liabilities to GDP has a negative impact on Lesotho's growth while having no significant effect on either total factor productivity growth or physical capital accumulation. This paper contends that financial liberalization in a poorly regulated environment may have contributed to this outcome. Consequently, the evidence suggests that the country may not be fully leveraging the potential benefits of financial development to drive economic prosperity.(ARDL) approach to cointegration, specifically applying the ARDL bounds-testing methodology. To capture the multifaceted aspects of financial development, four distinct proxy variables are used: ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions as a percentage of GDP, deposit money bank assets to deposit money bank assets and central bank assets and domestic credit to private sector as a percentage of GDP divided by domestic credit to private sector as a percentage of GDP plus credit to government and state-owned enterprises as a percentage of GDP. Initially, this study explores the influence of financial development on economic growth using all four proxy variables. Interestingly, only one variable - the ratio of liquid liabilities to GDP - emerges as statistically significant. However, its impact is negative in both the short and long run. Consistent with King and Levine's (1993) suggestions about the channels through which financial development affects economic growth, this research further explores the impact of the ratio of liquid liabilities to GDP on two crucial growth components: total productivity growth and the accumulation of physical capital. The results present a convincing narrative, revealing that the log of ratio of liquid liabilities to GDP has a negative impact on Lesotho's growth while having no significant effect on either total factor productivity growth or physical capital accumulation. This paper contends that financial liberalization in a poorly regulated environment may have contributed to this outcome. Consequently, the evidence suggests that the country may not be fully leveraging the potential benefits of financial development to drive economic prosperity. 2026-01-13T13:26:53Z 2026-01-13T13:26:53Z 2025 2026-01-13T12:35:11Z Thesis / Dissertation Masters MCom http://hdl.handle.net/11427/42564 en eng application/pdf School of Economics Faculty of Commerce University of Cape Town |
| spellingShingle | Autoregressive Distributed Lag Nteso, Ntsane Financial development and economic growth: evidence from Lesotho, 1981 - 2022 |
| thesis_degree_str | Master's |
| title | Financial development and economic growth: evidence from Lesotho, 1981 - 2022 |
| title_full | Financial development and economic growth: evidence from Lesotho, 1981 - 2022 |
| title_fullStr | Financial development and economic growth: evidence from Lesotho, 1981 - 2022 |
| title_full_unstemmed | Financial development and economic growth: evidence from Lesotho, 1981 - 2022 |
| title_short | Financial development and economic growth: evidence from Lesotho, 1981 - 2022 |
| title_sort | financial development and economic growth evidence from lesotho 1981 2022 |
| topic | Autoregressive Distributed Lag |
| url | http://hdl.handle.net/11427/42564 |
| work_keys_str_mv | AT ntesontsane financialdevelopmentandeconomicgrowthevidencefromlesotho19812022 |