Financial development in Africa - a critical examination

The thesis summarises eight published articles for my doctoral degree research project. Individually the published articles coherently present a critical examination of financial development in Africa. Three main shortcomings in the literature have motivated the project: limited studies on stock market development in spite of the need for more sources of long-term finance; the absence of literature that engages the exposure of financial systems in Africa to recent global crises and a mainstream definition of the financial system that is not relevant to the continent because it fails to incorporate the informal financial sector. The highlighted gaps are addressed in three main themes. The main results of the first theme are twofold. Political, economic and institutional governance can play a positive role in the performance of African stock markets. There is urgent need for the improvement of cross-country characteristics that enhance convergence for the performance of stock markets. Findings of the second theme are as follows. There is absence of convergence among member states of the CFA franc zones. Limited financial dynamics can be used in monetary policy to exert deflationary pressures in periods of soaring consumer prices. There is very moderate evidence supporting the hypothesis of thresholds in financial development for financial globalisation benefits. A new definition of the financial system in the third theme has also led to some interesting results. Liberalisation policies have broadly promoted the informal financial sector to the detriment of the formal sector. An example of such liberalisation is the information and communication technology sector, which has led to mobile phone penetration being positively (negatively) correlated with the informal (formal) financial sector. In another example, not all financial intermediary channels are pro-poor for the effectiveness of liberalisation policies in enhancing investment for inequality mitigation. Policy implications, research limitations and future research directions are discussed.