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Financial liberalisation, Banking Crises and Economic Growth in African Countries

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  • Enowbi Batuo, Michael
  • Mlambo, Kupukile

Abstract

While financial liberalisation is considered to be good for economic growth in that it promotes the development of the financial sector, banking crises on the other hand tend to be inimical for economic growth. Moreover, banking crises tend to be preceded by financial liberalisation, as noted in a number of studies. This is because financial liberalisation tends to induce greater risk-taking behaviour by agents, thus leading to banking crises. In this paper we study the effect of financial liberalisation and banking crises on the economic performance of African countries during the period covering 1985 to 2010. Using a treatment effect, two step methods and a panel probit method, our results show that banking crises have a negative impact on economic growth meanwhile financial liberalisation tends to reduce the likelihood of banking crises in African countries.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41524.

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Date of creation: Jun 2012
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Handle: RePEc:pra:mprapa:41524

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Keywords: O16; O47; G23; O55;

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  1. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  2. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  3. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2004. "The Positive Link Between Financial Liberalization Growth and Crises," UCLA Economics Working Papers 834, UCLA Department of Economics.
  4. Reinhart, Carmen & Tokatlidis, Ioannis, 2000. "Financial Liberalization: The African Experience," MPRA Paper 13423, University Library of Munich, Germany.
  5. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
  6. Betty Daniel & John Bailey Jones, 2001. "Financial Liberalization and Banking Crises in Emerging Economies," Discussion Papers 01-04, University at Albany, SUNY, Department of Economics.
  7. Donald S. Allen & Leonce Ndikumana, 1998. "Financial intermediation and economic growth in southern Africa," Working Papers 1998-004, Federal Reserve Bank of St. Louis.
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Cited by:
  1. Dandume, Muhammad Yusuf & A.C., Dr.Malarvizhi, 2014. "Does Financial Liberalization, Spur Economic Growth and Poverty Reduction in Six Sub-Saharan African Countries; Panel Unit Root and Panel Vector Error Correction Tests," MPRA Paper 52349, University Library of Munich, Germany, revised Aug 2013.

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