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The Knowledge Economy-finance nexus in SSA and MENA countries

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  • Asongu Simplice

    ()
    (Yaoundé/Cameroun)

Abstract

Purpose – This paper assesses dynamics of the knowledge economy (KE)-finance nexus using the four variables identified under the World Bank’s knowledge economy index (KEI) and seven financial intermediary dynamics of depth, efficiency, activity and size. Design/methodology/approach – Principal Component Analysis is used to reduce the dimensions of KE components before dynamic panel GMM estimation techniques are employed to examine the nexuses. Findings – Four main findings are established. (1) Education improves financial depth and financial efficiency but mitigates financial size. (2) But for a thin exception (trade’s incidence on money supply), economic incentives (credit facilities and trade) are not consistently favorable to financial development. (3) ICT improves only financial size and has a negative effect on other financial dynamics. (4) Proxies for innovation (journals and FDI) have a positive effect on financial activity; journals (FDI) have (has) a negative (positive) effect on liquid liabilities and; journals and FDI both have negative incidences on money supply and banking system efficiency respectively. Practical Implications – As a policy implication, the KE-finance nexus is a complex and multidimensional relationship. Hence, blind and blanket policy formulation to achieve positive linkages may not be successful unless policy-making strategy is contingent on the prevailing ‘KE specific component’ trends and dynamics of financial development. Policy makers should improve the economic incentive dimension of KE that overwhelmingly and consistently deters financial development, owing to surplus liquidity issues. Originality/value – As far as we have reviewed, this is the first paper to examine the KE-finance nexus with the plethora of KE dimensions defined by the World Bank’s KEI and all the dynamics identified by the Financial Development and Structure Database (FDSD).

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File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/The-Knowledge-Economy-Finance-Nexus-in-SSA-and-MENA-countries.pdf
File Function: Revised version, 2013
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Bibliographic Info

Paper provided by African Governance and Development Institute. in its series Working Papers with number 13/022.

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Length: 21
Date of creation: 02 Jan 2013
Date of revision:
Publication status: Forthcoming in the International Journal of Middle Eastern Finance and Management
Handle: RePEc:agd:wpaper:13/022

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Keywords: Financial development; Knowledge Economy;

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References

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  1. Antonio R. Andrés & Simplice A. Asongu, 2012. "Fighting software piracy: Which governance tools matter in Africa?," Development Research Working Paper Series 10/2012, Institute for Advanced Development Studies.
  2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  3. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis," Working Papers 12/006, African Governance and Development Institute..
  4. Simplice A, Asongu, 2012. "Harmonizing IPRs on Software Piracy: Empirics of Trajectories in Africa," MPRA Paper 42466, University Library of Munich, Germany.
  5. Simplice Anutechia Asongu, 2012. "Bank Efficiency and Openness in Africa: Do Income Levels Matter?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 4(2), pages 115-122, December.
  6. Asongu Simplice, 2012. "How has Mobile Phone Penetration Stimulated Financial Development in Africa?," Working Papers 12/026, African Governance and Development Institute..
  7. Simplice A, Asongu, 2012. "African Financial Development Dynamics: Big Time Convergence," MPRA Paper 36053, University Library of Munich, Germany.
  8. Simplice A. Asongu, 2013. "Real and monetary policy convergence: EMU crisis to the CFA zone," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(1), pages 20-38, February.
  9. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  10. Simplice A, Asongu, 2012. "How has mobile banking stimulated financial development in Africa?," MPRA Paper 38576, University Library of Munich, Germany.
  11. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  12. Ndikumana, Leonce, 2000. "Financial Determinants of Domestic Investment in Sub-Saharan Africa: Evidence from Panel Data," World Development, Elsevier, vol. 28(2), pages 381-400, February.
  13. Simplice A. Asongu, 2013. "Fighting consumer price inflation in Africa: What do dynamics in money, credit, efficiency and size tell us?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(1), pages 39-60, February.
  14. Simplice A, Asongu, 2012. "Fighting software piracy in Africa: how do legal origins and IPRs protection channels matter?," MPRA Paper 42766, University Library of Munich, Germany.
  15. Simplice A, Asongu, 2012. "Financial sector competition and knowledge economy: evidence from SSA and MENA countries," MPRA Paper 43009, University Library of Munich, Germany.
  16. Henry Kaiser, 1974. "An index of factorial simplicity," Psychometrika, Springer, vol. 39(1), pages 31-36, March.
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