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Finance and democracy in Africa

  • Simplice A, Asongu

The motivations of the Arab Spring and hitherto unanswered questions about some of its dynamics inspired this paper, which focuses on how democracy, polity and autocracy affect financial development dynamics of depth, efficiency, activity and size in Africa; contingent on religious-domination, income-levels and colonial-legacies. Findings could be summarized in the following. (1) Authoritarian regimes have a higher propensity to effect policies that favor the development of financial intermediary depth, activity and size. Democracy has important effects on the degree of competition for public offices but less significant effects in comparison with autocracy on policies towards financial development. (2) Christian-dominated countries have higher (lower) levels of financial intermediation efficiency (depth) than-Islam oriented countries. (3) Income-levels also matter in financial development as poor countries have a lower propensity to improve their financial dynamics than wealthy states. (4) On average English common-law countries have better democratic institutions that their French civil-law counterparts. (5) There is evidence of a U-shape relationship between national wealth and the level of democracy, with Low-income countries experiencing lower (higher) levels of democracy than Upper (Lower) middle income countries. As a policy implication, once democracy is initiated, it should be accelerated (to edge the appeals of authoritarian regimes) and reap the benefits of level and time hypotheses in financial development.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35500.

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Date of creation: 20 Dec 2011
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Handle: RePEc:pra:mprapa:35500
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  1. Simplice A, Asongu, 2012. "African Financial Development Dynamics: Big Time Convergence," MPRA Paper 36053, University Library of Munich, Germany.
  2. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, 02.
  3. Simplice A., Asongu, 2011. "Law, Finance and Investment: does legal origin matter?," MPRA Paper 34698, University Library of Munich, Germany.
  4. Simplice A., Simplice, 2011. "Why do French civil-law countries have higher levels of financial efficiency?," MPRA Paper 33950, University Library of Munich, Germany.
  5. Hristos Doucouliagos & Mehmet Ulubasoglu, 2006. "Democracy and Economic Growth: A Meta-Analysis," Economics Series 2006_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  6. Asongu Simplice, 2011. "Law and Investment in Africa," Working Papers 11/014, African Governance and Development Institute..
  7. Simplice A. Asongu, 2013. "Real and monetary policy convergence: EMU crisis to the CFA zone," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(1), pages 20-38, February.
  8. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  9. Asongu Simplice, 2012. "On the effect of foreign aid on corruption," Working Papers 12/031, African Governance and Development Institute..
  10. Asongu Simplice, 2012. "Fighting consumer price inflation in Africa. What do dynamics in money, credit, efficiency and size tell us?," Working Papers 12/011, African Governance and Development Institute..
  11. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis," Working Papers 12/006, African Governance and Development Institute..
  12. 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.
  13. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
  14. Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY & Jean-François BRUN, 1997. "How Instability Lowers African Growth ?," Working Papers 199712, CERDI.
  15. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  16. repec:ner:tilbur:urn:nbn:nl:ui:12-3125511 is not listed on IDEAS
  17. Asongu Simplice, 2011. "Law, finance, economic growth and welfare: why does legal origin matter?," Working Papers 11/007, African Governance and Development Institute..
  18. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  19. 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.
  20. Simplice A., Asongu, 2011. "Law and finance in Africa," MPRA Paper 34080, University Library of Munich, Germany.
  21. Ojo, Oladeji & Oshikoya, Temitope, 1995. "Determinants of Long-Term Growth: Some African Results," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 4(2), pages 163-91, October.
  22. Badawi, Ibrahim El & Makdisi, Samir, 2007. "Explaining the democracy deficit in the Arab world," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(5), pages 813-831, February.
  23. Olivier Blanchard & Andrei Shleifer, 2000. "Federalism with and without Political Centralization: China versus Russia," NBER Working Papers 7616, National Bureau of Economic Research, Inc.
  24. Simplice A., Asongu, 2011. "New financial intermediary development indicators for developing countries," MPRA Paper 30921, University Library of Munich, Germany.
  25. Asongu Simplice, 2011. "Government Quality Determinants of Stock Market Performance in African Countries," Working Papers 11/019, African Governance and Development Institute..
  26. Gyimah-Brempong, Kwabena & Traynor, Thomas L, 1999. "Political Instability, Investment and Economic Growth in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(1), pages 52-86, March.
  27. 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.
  28. Paresh Narayan & Seema Narayan & Russell Smyth, 2007. "Does Democracy Facilitate Economic Growth Or Does Economic Growth Facilitate Democracy? An Empirical Study Of Sub-Saharan Africa," Monash Economics Working Papers 10-07, Monash University, Department of Economics.
  29. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  30. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
  31. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  32. Jagdish Bhagwati, 1995. "Democracy and Development: New Thinking on an Old Question," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 30(1), pages 1-18, January.
  33. repec:fth:wobaco:1083 is not listed on IDEAS
  34. Yang, Benhua, 2011. "Does democracy foster financial development? An empirical analysis," Economics Letters, Elsevier, vol. 112(3), pages 262-265, September.
  35. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, vol. 70(3), pages 313-349, December.
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