Central bank independence and economic welfare in Africa: Do institutional quality and levels of central bank independence matter?

In this study, we examine the nexus between central bank independence and economic welfare while considering how institutional quality and levels of central bank independence affect this nexus. Employing a panel data of forty-five countries in a robust fixed effect regression between 1990 and 2012, we report that on a whole institutional quality and levels of central bank independence matter for economic welfare in Africa. Specifically, we show that although central bank independence promotes the economic welfare of citizenries in Africa, the propelling effect of central bank independence on welfare in Africa is profound and deepened in strong institutional quality economies. Furthermore, we report that higher levels of central bank independence reinforce economic welfare while lower levels of central bank independence detract economic welfare. These findings imply that welfare can be improved through central bank independence especially at higher levels of CBI and in strong institutional quality economies. From these findings, we recommend the implementation of policies that deepen the independence of regulators of financial institutions in Africa in order to promote the economic welfare of citizenries in Africa. Furthermore, economies must develop the quality of their institutions to reinforce and deepen the effect of central bank independence.