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Bank Efficiency and Openness in Africa: Do Income Levels Matter?

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  • Simplice Anutechia Asongu

Abstract

The business of this study is to investigate the role of openness in bank efficiency with respect to income levels. From a panel of 29 low and middle income African countries with data spanning from 1987 to 2008, we provide evidence that, openness (trade and financial) breeds less bank efficiency in low income countries. As for middle income countries, while financial openness has the same effect, results for trade openness are not significant. These findings justify the absence of a banking comparative advantage and consequently, the issue of over-liquidity resulting from low funding of credits by deposits. For policy implications, openness will increase the economic cost of banks in sampled countries. However, trade openness will be more detrimental than financial openness. More so, banks in middle income countries play a greater role in financing activities resulting from trade openness than those in low income countries.

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Article provided by Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante in its journal The Review of Finance and Banking.

Volume (Year): 04 (2012)
Issue (Month): 2 (December)
Pages: 115-122

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Handle: RePEc:rfb:journl:v:04:y:2012:i:3:p:115-122

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  1. Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2008. "Financial Development and Openness: Evidence from Panel Data," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 107, Center for Policy Research, Maxwell School, Syracuse University.
  2. Staub, Roberta B. & da Silva e Souza, Geraldo & Tabak, Benjamin M., 2010. "Evolution of bank efficiency in Brazil: A DEA approach," European Journal of Operational Research, Elsevier, Elsevier, vol. 202(1), pages 204-213, April.
  3. Sathye, Milind, 2003. "Efficiency of banks in a developing economy: The case of India," European Journal of Operational Research, Elsevier, Elsevier, vol. 148(3), pages 662-671, August.
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  5. Venus Khim-Sen Liew, 2004. "Which Lag Length Selection Criteria Should We Employ?," Economics Bulletin, AccessEcon, vol. 3(33), pages 1-9.
  6. Simplice A, Asongu, 2010. "Financial development, trade openness and financial openness: do income levels matter for developing countries?," MPRA Paper 27441, University Library of Munich, Germany.
  7. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2000. "A new database on financial development and structure," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125518, Tilburg University.
  8. Beck , Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2009. "Financial institutions and markets across countries and over time - data and analysis," Policy Research Working Paper Series 4943, The World Bank.
  9. Gries, Thomas & Kraft, Manfred & Meierrieks, Daniel, 2009. "Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa," World Development, Elsevier, Elsevier, vol. 37(12), pages 1849-1860, December.
  10. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
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  12. Sandrine Kablan, 2010. "Banking Efficiency and Financial Development in Sub-Saharan Africa," IMF Working Papers 10/136, International Monetary Fund.
  13. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, Elsevier, vol. 69(1), pages 5-50, July.
  14. Simplice Anutechia, Asongu, 2010. "Linkages between Financial Development and Openness: panel evidence from developing countries," MPRA Paper 26926, University Library of Munich, Germany.
  15. Kim, Dong-Hyeon & Lin, Shu-Chin & Suen, Yu-Bo, 2010. "Dynamic effects of trade openness on financial development," Economic Modelling, Elsevier, Elsevier, vol. 27(1), pages 254-261, January.
  16. Asongu Simplice, 2011. "Globalization, Financial Development and Regional Economic Dynamics: asymmetric panel evidence from Africa," Working Papers 11/008, African Governance and Development Institute..
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