IDEAS home Printed from https://ideas.repec.org/p/agd/wpaper/17-040.html
   My bibliography  Save this paper

Dynamic Openness and Finance in Africa

Author

Listed:
  • Simplice Asongu

    () (Yaoundé/Cameroon)

  • Jules R. Minkoua N

    () (Buea, Cameroon)

Abstract

This study assesses dynamics of openness and finance in Africa by integrating financial development dynamics of depth, activity and size in the assessment of how financial, trade, institutional, political and other openness policies (of second generation structural and institutional reforms) have affected financial development. The empirical evidence is based on Generalized Method of Moments with data from 28 African countries for the period 1996-2010. The following findings are established. (i) While the de jure (KAOPEN) indicator of financial openness improves financial depth, the de facto (FDI) measurement decreases it, with the effect of the latter measure positive on financial size. (ii) Whereas trade openness improves financial depth, its effect on financial activity and size is negative. (iii) Institutional openness has a positive effect on financial dynamics of depth and activity, while its effect on financial size is negative. (iv) Political openness and economic freedom are detrimental to financial depth and activity. Justifications for these nexuses are discussed.

Suggested Citation

  • Simplice Asongu & Jules R. Minkoua N, 2017. "Dynamic Openness and Finance in Africa," Working Papers 17/040, African Governance and Development Institute..
  • Handle: RePEc:agd:wpaper:17/040
    as

    Download full text from publisher

    File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/Dynamic-Openness-and-Finance-in-Africa.pdf
    File Function: Revised version, 2017
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
    2. 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.
    3. Simplice Asongu, 2015. "Liberalisation and Financial Sector Competition: A Critical Contribution to the Empirics with an African Assessment," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 425-451, September.
    4. Simplice Asongu, 2016. "New empirics of monetary policy dynamics: evidence from the CFA franc zones," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 7(2), pages 164-204, June.
    5. Asongu, Simplice A., 2017. "Assessing marginal, threshold, and net effects of financial globalisation on financial development in Africa," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 103-114.
    6. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    7. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
    8. Simplice Asongu, 2014. "Financial development dynamic thresholds of financial globalization: Evidence from Africa," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 166-195, March.
    9. repec:eme:ajempp:ajems-03-2017-146 is not listed on IDEAS
    10. Bourguignon, Francois & Morrisson, Christian, 1998. "Inequality and development: the role of dualism," Journal of Development Economics, Elsevier, vol. 57(2), pages 233-257.
    11. Motelle, Sephooko & Biekpe, Nicholas, 2015. "Financial integration and stability in the Southern African development community," Journal of Economics and Business, Elsevier, vol. 79(C), pages 100-117.
    12. repec:eme:ajempp:ajems-03-2017-145 is not listed on IDEAS
    13. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
    14. Ayhan Kose, M. & Prasad, Eswar S. & Taylor, Ashley D., 2011. "Thresholds in the process of international financial integration," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 147-179, February.
    15. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    16. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
    17. Odhiambo, Nicholas M., 2009. "Finance-growth-poverty nexus in South Africa: A dynamic causality linkage," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 320-325, March.
    18. Enowbi Batuo, Michael & Guidi, Francesco & Mlambo, Kupukile, 2010. "Financial Development and Income Inequality: Evidence from African Countries," MPRA Paper 25658, University Library of Munich, Germany.
    19. Simplice A. Asongu, 2014. "Finance and Democracy in Africa," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 6(3), pages 92-116, October.
    20. Nicholas M. Odhiambo, 2010. "Financial deepening and poverty reduction in Zambia: an empirical investigation," International Journal of Social Economics, Emerald Group Publishing, vol. 37(1), pages 41-53, February.
    21. Vanessa S. Tchamyou & Simplice A. Asongu, 2017. "Information Sharing and Financial Sector Development in Africa," Journal of African Business, Taylor & Francis Journals, vol. 18(1), pages 24-49, January.
    22. Michael Enowbi-Batuo & Mlambo Kupukile, 2010. "How can economic and political liberalisation improve financial development in African countries?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 2(1), pages 35-59, April.
    23. Njindan Iyke , Bernard & Odhiambo, Nicholas M., 2015. "Does stock market performance spur economic growth? Empirical evidence from Ghana," Working Papers 18977, University of South Africa, Department of Economics.
    24. Montinola, Gabriella R. & Jackman, Robert W., 2002. "Sources of Corruption: A Cross-Country Study," British Journal of Political Science, Cambridge University Press, vol. 32(01), pages 147-170, January.
    25. repec:eme:ajempp:ajems-03-2017-144 is not listed on IDEAS
    26. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    27. Dani Rodrik & Arvind Subramanian, 2009. "Why Did Financial Globalization Disappoint?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 112-138, April.
    28. Michael Enowbi Batuo & Simplice A. Asongu, 2015. "The impact of liberalisation policies on income inequality in African countries," Journal of Economic Studies, Emerald Group Publishing, vol. 42(1), pages 68-100, January.
    29. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    30. Asongu Simplice, 2011. "Government Quality Determinants of Stock Market Performance in African Countries," Working Papers 11/019, African Governance and Development Institute..
    31. Sheilla Nyasha & Nicholas M. Odhiambo, 2017. "Banks, Stock Market Development and Economic Growth in Kenya: An Empirical Investigation," Journal of African Business, Taylor & Francis Journals, vol. 18(1), pages 1-23, January.
    32. Sheilla Nyasha & Nicholas M. Odhiambo, 2015. "The Impact of Banks and Stock Market Development on Economic Growth in South Africa: an ARDL-bounds Testing Approach," Contemporary Economics, University of Finance and Management in Warsaw, vol. 9(1), April.
    33. Nicholas M. Odhiambo, 2013. "Is financial development pro-poor or pro-rich? Empirical evidence from Tanzania," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 5(4), pages 489-500, December.
    34. Federico Varese, 1997. "The Transition to the Market and Corruption in Post-socialist Russia," Political Studies, Political Studies Association, vol. 45(3), pages 579-596.
    35. repec:eme:ajempp:ajems-01-2016-0007 is not listed on IDEAS
    36. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    37. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," World Bank Economic Review, World Bank Group, vol. 14(2), pages 287-307, May.
    38. Simplice A Asongu & Lieven De Moor, 2017. "Financial Globalisation Dynamic Thresholds for Financial Development: Evidence from Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(1), pages 192-212, January.
    39. Nicholas M. Odhiambo, 2010. "Is financial development a spur to poverty reduction? Kenya's experience," Journal of Economic Studies, Emerald Group Publishing, vol. 37(3), pages 343-353, August.
    40. Sheilla Nyasha & Nicholas M. Odhiambo, 2015. "Do banks and stock markets spur economic growth? Kenya's experience," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 7(1), pages 54-65.
    41. Magnus Saxegaard, 2006. "Excess Liquidity and Effectiveness of Monetary Policy; Evidence from Sub-Saharan Africa," IMF Working Papers 06/115, International Monetary Fund.
    42. Erasmus L. Owusu & Nicholas M. Odhiambo, 2014. "Stock market development and economic growth in Ghana: an ARDL-bounds testing approach," Applied Economics Letters, Taylor & Francis Journals, vol. 21(4), pages 229-234, March.
    43. Simplice A., Simplice, 2011. "Why do French civil-law countries have higher levels of financial efficiency?," MPRA Paper 33950, University Library of Munich, Germany.
    44. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    45. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    46. Babajide Fowowe, 2014. "Law and Finance Revisited: Evidence from African Countries," South African Journal of Economics, Economic Society of South Africa, vol. 82(2), pages 193-208, June.
    47. repec:cup:apsrev:v:66:y:1972:i:01:p:68-90_13 is not listed on IDEAS
    48. Henry Kaiser, 1974. "An index of factorial simplicity," Psychometrika, Springer;The Psychometric Society, vol. 39(1), pages 31-36, March.
    49. Thouraya Triki & Ousman Gajigo, 2014. "Credit Bureaus and Registration and Access to Finance: New Evidence from 42 African Countries," Journal of African Development, African Finance and Economic Association, vol. 16(2), pages 73-101.
    50. Menzie D. Chinn & Hiro Ito, 2002. "Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence," NBER Working Papers 8967, National Bureau of Economic Research, Inc.
    51. Wade, Robert, 1985. "The market for public office: Why the Indian state is not better at development," World Development, Elsevier, vol. 13(4), pages 467-497, April.
    52. Gregory N. Price & Juliet U. Elu, 2014. "Does regional currency integration ameliorate global macroeconomic shocks in sub-Saharan Africa? The case of the 2008-2009 global financial crisis," Journal of Economic Studies, Emerald Group Publishing, vol. 41(5), pages 737-750, September.
    53. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, pages 1-16.
    54. Charles Adjasi & Nicholas Biekpe, 2006. "Stock Market Development and Economic Growth: The Case of Selected African Countries," African Development Review, African Development Bank, vol. 18(1), pages 144-161.
    55. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
    56. Arestis, Philip, et al, 2002. "The Impact of Financial Liberalization Policies on Financial Development: Evidence from Developing Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 109-121, April.
    57. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    58. Savvides, Andreas, 1998. "Trade policy and income inequality: new evidence," Economics Letters, Elsevier, vol. 61(3), pages 365-372, December.
    59. repec:eme:ajempp:ajems-03-2017-148 is not listed on IDEAS
    60. Nicholas M. Odhiambo, 2011. "Growth, Employment and Poverty in South Africa: In Search of a Trickle-Down Effect," Journal of Income Distribution, Ad libros publications inc., vol. 20(1), pages 49-62, March.
    61. Sean J. Gossel & Nicholas Biekpe, 2014. "Economic growth, trade and capital flows: A causal analysis of post-liberalised South Africa," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(6), pages 815-836, September.
    62. Nicholas M. Odhiambo, 2009. "Financial deepening and poverty reduction in Zambia: an empirical investigation," International Journal of Social Economics, Emerald Group Publishing, vol. 37(1), pages 41-53, December.
    63. Stephen Bond & Anke Hoeffler, 2001. "GMM Estimation of Empirical Growth Models," Economics Series Working Papers 2001-W21, University of Oxford, Department of Economics.
    64. repec:eme:ajempp:ajems-12-2015-0143 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Banking; Trade; Institutions; Politics; Africa;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:agd:wpaper:17/040. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Asongu Simplice). General contact details of provider: http://edirc.repec.org/data/agdiycm.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.