Do Development Financing Institutions Spur Economic Growth in Zimbabwe?

Abstract

The economy of Zimbabwe has primarily been declining since 1998. This is true despite the fact that the government of Zimbabwe established development financing institutions (DFIs) with the intention of enabling the major sectors to significantly contribute to the country's economic growth. Therefore, the study sought an empirical response to the question, "Do DFIs in Zimbabwe spur economic growth?" To test this link, Granger-causality criteria and Ordinary Least Squares estimation were used covering the period 1990-2020. Contrary to expectations, the analysis found that total development funding from the state owned DFIs had a negative impact on economic growth, while direct foreign remittances, official development assistance, trade openness, bilateral and multilateral funding all had a positive impact on growth. The Granger causality test results disproved the existence of a causal link between DFIs and economic growth in Zimbabwe. The study suggests, among other things, the necessity to increase DFI funding by cultivating an atmosphere economically favourable that enables both domestic and external DFIs to function at full potential.