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Financial globalisation uncertainty/instability is good for financial development

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  • Asongu, Simplice A.
  • Koomson, Isaac
  • Tchamyou, Vanessa S.

Abstract

This study assesses the effect of time-dynamic financial globalisation uncertainty on financial development in 53 African countries for the period 2000–2011. The empirical evidence is based on the Generalised Method of Moments with forward orthogonal deviations. The following findings are established. First, financial globalisation uncertainty does not significantly affect money supply, financial system deposits and financial size. Second, the uncertainty increases banking system efficiency, banking system activity and financial system activity. Moreover, the positive effects are consistently driven by above-median uncertainty levels. It follows that uncertainty in foreign capital flows may be a disguised advantage for domestic financial development, especially in dealing with the substantially documented issue of surplus liquidity in African financial institutions. Additionally, the sceptical view in the financial globalisation literature that ‘allocation efficiency’ is only plausible in the absence of uncertainty/instability is not substantiated by the findings. Justifications for the nexuses and policy implications are discussed.

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  • Asongu, Simplice A. & Koomson, Isaac & Tchamyou, Vanessa S., 2017. "Financial globalisation uncertainty/instability is good for financial development," Research in International Business and Finance, Elsevier, vol. 41(C), pages 280-291.
  • Handle: RePEc:eee:riibaf:v:41:y:2017:i:c:p:280-291
    DOI: 10.1016/j.ribaf.2017.04.042
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    More about this item

    Keywords

    Banking; Financial integration; Development;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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