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Central bank independence and economic welfare in Africa: Do institutional quality and levels of central bank independence matter?

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  • Baah Aye Kusi
  • Obed Anann Nortey
  • Gloria Clarissa Dzeha

    () (University of Ghana Business School)

Abstract

In this study, we examine the nexus between central bank independence and economic welfare while considering how institutional quality and levels of central bank independence affect this nexus. Employing a panel data of forty-five countries in a robust fixed effect regression between 1990 and 2012, we report that on a whole institutional quality and levels of central bank independence matter for economic welfare in Africa. Specifically, we show that although central bank independence promotes the economic welfare of citizenries in Africa, the propelling effect of central bank independence on welfare in Africa is profound and deepened in strong institutional quality economies. Furthermore, we report that higher levels of central bank independence reinforce economic welfare while lower levels of central bank independence detract economic welfare. These findings imply that welfare can be improved through central bank independence especially at higher levels of CBI and in strong institutional quality economies. From these findings, we recommend the implementation of policies that deepen the independence of regulators of financial institutions in Africa in order to promote the economic welfare of citizenries in Africa. Furthermore, economies must develop the quality of their institutions to reinforce and deepen the effect of central bank independence.

Suggested Citation

  • Baah Aye Kusi & Obed Anann Nortey & Gloria Clarissa Dzeha, 2019. "Central bank independence and economic welfare in Africa: Do institutional quality and levels of central bank independence matter?," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 9(1), pages 79-93.
  • Handle: RePEc:afj:journ3:v:9:y:2019:i:1:p:79-93
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    File URL: https://journals.co.za/content/journal/10520/EJC-17cee9acee
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    Keywords

    Economic welfare; Central bank independence; Institutional quality; Africa;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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