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Growth Effects of Financial Integration and Financial Deepening in Selected Sub-Saharan African Economies: a Panel-Data Approach

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  • Evans, Olaniyi

Abstract

This paper investigates the growth effects of financial integration and financial deepening in selected SSA economies, using a panel dataset of 10 SSA countries from 1970-2012. We use ratio of net FDI inflow to GDP (proxy for financial integration), ratio of gross capital formation to GDP (proxy for investment) and ratio of domestic credit to GDP (proxy for level of financial deepening) as documented in Gregorio (1998). We also incorporated the random effects and Wald tests. The study finds that financial integration and financial deepening play positive and significant roles in boosting the economic growth of SSA countries. It also emphasizes that these countries have been relatively successful over the last decade in attracting international capital inflows which have been crowding out domestic investment. This fact reinforces the fact that SSA economies which open themselves to the world economy need at first abolish domestic distortions to reap the benefits of globalization. It is even more imperative to upgrade the essential frameworks for sound, efficient, and inclusive financial systems. It is up to SSA’s financial sector stakeholders – bankers, donors, and policymakers – to pilot financial sector reforms in a way that amplifies SSA’s opportunities, learning both from their own experience over the past 50 years and the experience in other emerging and developed economies.

Suggested Citation

  • Evans, Olaniyi, 2013. "Growth Effects of Financial Integration and Financial Deepening in Selected Sub-Saharan African Economies: a Panel-Data Approach," MPRA Paper 52458, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:52458
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    File URL: https://mpra.ub.uni-muenchen.de/52458/1/MPRA_paper_52458.pdf
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    References listed on IDEAS

    as
    1. Thorsten Beck & Asli Demirgüç-Kunt & Maria Soledad Martinez Peria, 2008. "Banking Services for Everyone? Barriers to Bank Access and Use around the World," World Bank Economic Review, World Bank Group, vol. 22(3), pages 397-430, November.
    2. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    3. Gries, Thomas & Kraft, Manfred & Meierrieks, Daniel, 2009. "Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 37(12), pages 1849-1860, December.
    4. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
    5. Mouawiya Al-Awad & Nasri Harb, 2005. "Financial development and economic growth in the Middle East," Applied Financial Economics, Taylor & Francis Journals, vol. 15(15), pages 1041-1051.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Growth effects; financial integration; financial deepening; FDI; international capital inflows; domestic investment; financial systems;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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