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Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital?

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  • Ibrahim, Muazu
  • Sare, Yakubu Awudu

Abstract

This study examines the determinants of financial sector development in Africa relying on data for 46 countries spanning 1980–2015 using the system generalized method of moments. More importantly, we investigate the issue of whether the interaction of trade openness and human capital can explain financial development. Our findings show that, while human capital robustly influence financial development, trade openness robustly matter more for private credit than domestic credit. The interactive terms of openness and human capital are significantly related to financial development. Evaluation of the marginal effects reveal that trade openness (human capital) has greater impact on private (domestic) credit than human capital (trade openness). Our evidence largely suggests that human capital accumulation and trade openness are substitutable in influencing financial development in Africa.

Suggested Citation

  • Ibrahim, Muazu & Sare, Yakubu Awudu, 2018. "Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital?," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 18-26.
    • Handle: RePEc:eee:ecanpo:v:60:y:2018:i:c:p:18-26
    DOI: 10.1016/j.eap.2018.09.002
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    More about this item

    Keywords

    Financial development; Trade openness; Human capital; GMM; Africa;
    All these keywords.

    JEL classification:

    • J19 - Labor and Demographic Economics - - Demographic Economics - - - Other
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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