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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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  13. 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.
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  18. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
  19. Simplice A., Asongu, 2011. "Law, Finance and Investment: does legal origin matter?," MPRA Paper 34698, University Library of Munich, Germany.
  20. Simplice A., Asongu, 2011. "Law, finance, economic growth and welfare: why does legal origin matter?," MPRA Paper 33868, University Library of Munich, Germany.
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  24. Rene M. Stulz & Rohan Williamson, 2001. "Culture, Openness, and Finance," NBER Working Papers 8222, National Bureau of Economic Research, Inc.
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  28. Simplice A, Asongu, 2012. "On the effect of foreign aid on corruption," MPRA Paper 36545, University Library of Munich, Germany.
  29. 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..
  30. 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.
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