Microfinance, Governance and Economic Growth Causality in Cameroon

Abstract

This paper contributes to the knowledge of development finance by providing a unique opportunity to develop microfinance banks (MFBs) production possibilities frontier (PPF) and a long run equilibrium supply model in order to demonstrate that good governance may lead to efficient economic outcomes and subsequently to economic growth. Due to the lacuna of works on the causal relationship between MFBs activities and economic expansion, we have proposed a specification of the economic development model which is consistent using our PPF Model and the Equilibrium Supply Long Run Models by supporting the hypothesis that there exists a long-run cointegrating relationship between microfinance activities and economic progress. For a robustness test related to our results, the paper has also performed a causality tests which suggest a bidirectional causality between microfinance activities and economic growth in the long run. Our results therefore give credence to the suggestion that the introduction of further compatible governance incentives which allows increases in MFBs efficiency will encourage economic advance.