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Financial development dynamic thresholds of financial globalization: Evidence from Africa

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  • Simplice Asongu

Abstract

Purpose – The issue of which financial initial conditions are necessary to materialize the benefits of financial globalization remains open to debate in the literature. In this paper, the author tries to put some empirical structure on the concept of financial threshold conditions in order to give policymakers guidance on the Kose et al. and Henry hypothesis. Its object is to assess whether financial benefits of financial globalization are questionable until greater domestic financial development has taken place in African countries. The paper aims to discuss these issues. Design/methodology/approach – In framing the financial dimension in a more concrete and tractable manner, the author examines the concerns of how domestic financial initial dynamics of depth (economic and financial systems), efficiency (banking and financial systems), activity (banking and financial systems) and size, play out in the financial development benefits of financial globalization. The estimation approach consists of assessing the impact of financial globalization through out the conditional distributions of domestic financial development dynamics. Findings – The introduction of previously missing financial dimensions into the debate generates a number of important findings. Only financial initial (threshold) conditions of size are necessary to materialize the benefits of financial globalization. While financial depth only partially validates the hypothesis, dynamics of efficiency and activity (credit) do not confirm the hypothesis. Practical implications – Addressing the issue of surplus liquidity in African financial institutions could improve the benefits of financial size and potentially reverse the trends of financial efficiency and activity. Depending on the context of sampled countries, the appropriate role of policy has always been either to stem the tide of capital flows or encourage them. Policymakers who have been viewing their challenges exclusively from the latter perspective for benefits in growth (finance) might be getting the financial dynamics badly wrong. Originality/value – Blanket financial development policies may not reap the financial benefits of financial globalization until domestic financial dynamics of depth, efficiency, activity and size are critically considered. The introduction of the last three previously missing components in the literature sheds more light on the globalization-development nexus.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 41 (2014)
Issue (Month): 2 (March)
Pages: 166 - 195

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Handle: RePEc:eme:jespps:v:41:y:2014:i:2:pp:166-195

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Related research

Keywords: Banking; Development; Financial integration; International investment Article type: Conceptual paper;

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References

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Citations

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Cited by:
  1. Asongu Simplice, 2012. "Development thresholds of foreign aid effectiveness in Africa," Working Papers 12/010, African Governance and Development Institute..
  2. Asongu Simplice, 2013. "Inequality, poverty and quality of institutions: which freedom channels of globalization matter for Africa?," Working Papers 13/014, African Governance and Development Institute..
  3. Simplice A., Asongu, 2011. "Law and finance in Africa," MPRA Paper 34080, University Library of Munich, Germany.
  4. Asongu, Simplice, 2013. "A note on the long-run neutrality of monetary policy: new empirics," MPRA Paper 56796, University Library of Munich, Germany.
  5. Simplice A Asongu, 2014. "On the substitution of institutions and finance in investment," Economics Bulletin, AccessEcon, vol. 34(3), pages 1557-1574.
  6. Asongu, Simplice, 2013. "Determinants of Health Professionals’ Migration in Africa: a WHO based Assessment," MPRA Paper 56802, University Library of Munich, Germany.
  7. Akpan, Uduak & Isihak, Salisu & Asongu, Simplice, 2014. "Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT," MPRA Paper 56810, University Library of Munich, Germany.
  8. Asongu Simplice, 2014. "Fresh Patterns of Liberalization, Bank Return and Return Uncertainty in Africa," Working Papers 14/004, African Governance and Development Institute..
  9. Simplice A Asongu, 2013. "How has politico-economic liberalization affected financial allocation efficiency? Fresh African evidence," Economics Bulletin, AccessEcon, vol. 33(1), pages 663-676.

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