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On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?

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  • Clement Olalekan Olaniyi

    (Obafemi Awolowo University)

Abstract

Studies have continued to emerge on the transmission channels through which finance influences growth. It has been argued that more finance without efficient institutions may not yield more growth. Meanwhile, studies on sub-Saharan Africa are sparse. None of existing studies have examined the moderating effect of institutions on finance–growth nexus in Southern Africa despite the weak institutions in the sub-region. Deviating from extant studies, this study contributes to general discussion by taking care of cross-sectional dependence among countries within an economic bloc. Driscoll and Kraay’s nonparametric covariance matrix estimator is used to take care of cross-sectional dependence. The research outputs reveal that institutional quality complements and stimulates the growth benefits of financial development in Southern African countries. It is further established that institutional quality has to persistently be above the threshold of 6.08 on the ordinal scale of 10 point before institution can strongly stimulate and complement financial development to impact positively on growth. This study, therefore, recommends that there is an urgent need for Southern African countries to strengthen and improve the quality of institutions so as to maximize the growth benefits of financial development.

Suggested Citation

  • Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:1:d:10.1007_s10644-020-09313-5
    DOI: 10.1007/s10644-020-09313-5
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    More about this item

    Keywords

    Financial development; Institutional quality; Economic growth; GMM; Threshold; Southern Africa;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania

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