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Threshold Effect of Financial Development on Sectoral Efficiency in Africa

Author

Listed:
  • Barbara Deladem Mensah

    (Accra, Ghana)

  • George Tweneboah

    (Cape Coast, Ghana)

  • John Gartchie Gatsi

    (Cape Coast, Ghana)

  • Simplice A. Asongu

    (Johannesburg, South Africa)

Abstract

This paper examines the threshold effect of financial development on sectoral efficiency using 42 African countries from 2000 to 2020. The paper employs the panel threshold regression estimation. To measure financial development, the paper used domestic credit to private sector and bank deposits to GDP. The findings of shows that the effect of financial development on sectoral efficiency depends on the measure of financial development. Domestic credit and bank deposits have a positive linear effect on the efficiency of the manufacturing sector. Domestic credit has a U-shaped relationship with agriculture technical efficiency but its relationship with the service sector is inverted U-shaped. This study makes some significant contributions. Bank deposits drive efficiency but beyond a certain level, the effect is not significant. The study suggests that domestic credits to the private sector beyond 8.0976% are good for agriculture technical efficiency while domestic credit below 11.1906% is needed for service sector efficiency. Also, threshold values below 25.9713% and 14.8981% are recommended to see a significant positive effect of bank deposits on efficiency (agriculture and service sectors respectively). This paper is the first to consider the threshold effect of financial development on sectoral efficiency.

Suggested Citation

  • Barbara Deladem Mensah & George Tweneboah & John Gartchie Gatsi & Simplice A. Asongu, 2026. "Threshold Effect of Financial Development on Sectoral Efficiency in Africa," Working Papers 26/066, European Xtramile Centre of African Studies (EXCAS).
    • Handle: RePEc:exs:wpaper:26/066
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    Keywords

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    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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