IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/20651.html
   My bibliography  Save this paper

How Can Economic and Political Liberalisation Improve Financial Development in African Countries?

Author

Listed:
  • Enowbi Batuo, Michael
  • Kupukile, Mlambo

Abstract

The objective of this paper is to study the interactions between economic liberalisation, political liberalisation and financial development in African countries. More specifically, we seek to establish the impact of economic, political and institutional openness on financial deepening. The empirical approach will be two-step procedure, first using a difference in difference method to show the various aspect of financial liberalisation on economic and political freedom while the second step will be using panel data techniques from period 1990 to 2005. The estimation results can be summarised as the following, first, Economic and financial liberalisation did account significantly for the financial development performance. While political stability show a positive overall effect on financial development, the association with Political freedom is consistent only after controlling the endogeneity of Political freedom on financial development. This result indicates that the transformation of the political and economic environment has improved the performance of the financial sector.

Suggested Citation

  • Enowbi Batuo, Michael & Kupukile, Mlambo, 2009. "How Can Economic and Political Liberalisation Improve Financial Development in African Countries?," MPRA Paper 20651, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20651
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/20651/1/MPRA_paper_20651.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2007. "Financial Development, Openness and Institutions: Evidence from Panel Data," WEF Working Papers 0022, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
    2. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    3. Colin Mayer & Oren Sussman, 2001. "The Assessment: Finance, Law, and Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 457-466.
    4. L Alan Winters, 2004. "Trade Liberalisation and Economic Performance: An Overview," Economic Journal, Royal Economic Society, vol. 114(493), pages 4-21, February.
    5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    6. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March.
    7. Martin, Philippe & Ann Rogers, Carol, 2000. "Long-term growth and short-term economic instability," European Economic Review, Elsevier, vol. 44(2), pages 359-381, February.
    8. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    9. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    10. Roberto Rigobon & Dani Rodrik, 2004. "Rule of Law, Democracy, Openness, and Income: Estimating the Interrelationships," NBER Working Papers 10750, National Bureau of Economic Research, Inc.
    11. Siong Hook Law, 2007. "Openness and Financial Development," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 6(2), pages 145-165, May.
    12. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, vol. 41(1), pages 43-56, August.
    13. Minier, Jenny A, 1998. "Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-266, September.
    14. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March.
    15. Persson, Torsten, 2005. "Forms of Democracy, Policy and Economic Development," CEPR Discussion Papers 4938, C.E.P.R. Discussion Papers.
    16. Dani Rodrik & Romain Wacziarg, 2005. "Do Democratic Transitions Produce Bad Economic Outcomes?," American Economic Review, American Economic Association, vol. 95(2), pages 50-55, May.
    17. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," The World Bank Economic Review, World Bank Group, vol. 10(2), pages 223-239, May.
    18. 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.
    19. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
    20. Ronald G. Ehrenberg & Paul J. Pieper & Rachel A. Willis, 1995. "Would Reducing Tenure Probabilities Increase Faculty Salaries?," NBER Working Papers 5150, National Bureau of Economic Research, Inc.
    21. Marco Pagano & Paolo Volpin, 2001. "The Political Economy of Finance," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 502-519.
    22. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
    23. Dani Rodrik, 1992. "The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?," NBER Working Papers 3947, National Bureau of Economic Research, Inc.
    24. Nita Rudra, 2005. "Globalization and the Strengthening of Democracy in the Developing World," American Journal of Political Science, John Wiley & Sons, vol. 49(4), pages 704-730, October.
    25. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    26. Demirguc-Kunt, Asli & Levine, Ross, 1999. "Bank-based and market-based financial systems - cross-country comparisons," Policy Research Working Paper Series 2143, The World Bank.
    27. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    28. Ross Levine, 2001. "International Financial Liberalization and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 688-702, November.
    29. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yongfu Huang, 2005. "Will political liberalisation bring about financial development?," Bristol Economics Discussion Papers 05/578, School of Economics, University of Bristol, UK.
    2. Huang, Yongfu, 2010. "Political Institutions and Financial Development: An Empirical Study," World Development, Elsevier, vol. 38(12), pages 1667-1677, December.
    3. Enowbi Batuo, Michael & Mlambo, Kupukile, 2012. "Financial liberalisation, Banking Crises and Economic Growth in African Countries," MPRA Paper 41524, University Library of Munich, Germany.
    4. Hatra Voghouei & M. Azail & Siong Law, 2013. "The effect of dynamic legal tradition on financial development: panel data evidence," European Journal of Law and Economics, Springer, vol. 35(1), pages 109-136, February.
    5. Lee, Chien-Chiang & Chang, Chi-Hung & Arouri, Mohamed & Lee, Chi-Chuan, 2016. "Economic growth and insurance development: The role of institutional environments," Economic Modelling, Elsevier, vol. 59(C), pages 361-369.
    6. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, School of Economics, University of Bristol, UK.
    7. Uwe Sunde, 2006. "Wirtschaftliche Entwicklung und Demokratie – Ist Demokratie ein Wohlstandsmotor oder ein Wohlstandsprodukt?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(4), pages 471-499, November.
    8. Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, vol. 89(2), pages 285-296, July.
    9. Mohammad Salam Ibrahim AlShiab & Husam-Aldin N. Al-Malkawi & Abdelmounaim Lahrech, 2020. "Revisiting the Relationship between Governance Quality and Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 54-63.
    10. Batuo, Michael & Mlambo, Kupukile & Asongu, Simplice, 2018. "Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa," Research in International Business and Finance, Elsevier, vol. 45(C), pages 168-179.
    11. Badi Baltagi & Panicos Demetriades & Siong Hook Law, 2007. "Financial Development, Openness and Institutions: Evidence from Panel Data," Money Macro and Finance (MMF) Research Group Conference 2006 166, Money Macro and Finance Research Group.
    12. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratisation and Growth," Economic Journal, Royal Economic Society, vol. 118(532), pages 1520-1551, October.
    13. Christiansen, Lone & Schindler, Martin & Tressel, Thierry, 2013. "Growth and structural reforms: A new assessment," Journal of International Economics, Elsevier, vol. 89(2), pages 347-356.
    14. William R. Cline, 2010. "Financial Globalization, Economic Growth, and the Crisis of 2007-09," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 499, October.
    15. Mr. Thierry Tressel & Ms. Enrica Detragiache, 2008. "Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset," IMF Working Papers 2008/265, International Monetary Fund.
    16. Batuo Enowbi, Michael & Kupukile, Mlambo, 2012. "Financial instability, financial openness and economic growth in african countries," MPRA Paper 43340, University Library of Munich, Germany.
    17. Hauner, David & Prati, Alessandro & Bircan, Cagatay, 2013. "The interest group theory of financial development: Evidence from regulation," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 895-906.
    18. Wei Huang, 2006. "Emerging Markets, Financial Openness and Financial Development," Bristol Economics Discussion Papers 06/588, School of Economics, University of Bristol, UK.
    19. Eicher, Theo S. & Schreiber, Till, 2010. "Structural policies and growth: Time series evidence from a natural experiment," Journal of Development Economics, Elsevier, vol. 91(1), pages 169-179, January.
    20. Barry Eichengreen & David Leblang, 2008. "Democracy And Globalization," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 289-334, November.

    More about this item

    Keywords

    Political Liberalisation; Economic Liberalisation; Financial Development and Africa;
    All these keywords.

    JEL classification:

    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • G2 - Financial Economics - - Financial Institutions and Services
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

    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:pra:mprapa:20651. 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: . General contact details of provider: https://edirc.repec.org/data/vfmunde.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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.