Deciphering African Financial Development Interaction With Institutional Quality And Economic Growth Nexus

Easmond Baah Nketia, Yusheng Kong

Abstract


The paper scrutinized the correlation between financial development interaction with institutional quality and economic growth in Africa. The study adopted 30 different interactions. The study used the Augmented mean group estimation technique to estimate the model. Gross domestic savings/GDP and broad money/GDP positively influenced growth with the majority of interactions with institutional quality indicators. Credit to Private Sector/GDP interaction with Voice & Accountability; and Political Stability has a higher impact on growth than any interaction variable. However, government effectiveness, regulatory quality, and corruption control are weak in Africa; even if interacted with financial development indicators, it mostly reduces economic growth. This study recommends that governments in Africa strengthen financial development indicators; Bank Deposit/GDP, Gross Domestic Savings/GDP and Credit to private sector/GDP, and institutional quality indicator political stability & absence of violence since their interaction has proven to aid rapid economic growth.

JEL Classification: E17, F62, F63

How to Cite:

Nketia, E. B., & Kong, Y. (2021). Decipheting African Financial Development Interaction with Institutional Quality and Economic Growth Nexus. Etikonomi: Jurnal Ekonomi, 20(1), 23 – 44. https://doi.org/10.15408/etk.v20i1.16177.


Keywords


Financial Development; Institutional Quality; Economic Growth; Interactions

Full Text:

PDF

References


Adzima, K., & Baita, K. (2019). The Impact of Governance on Economic Growth: An Empirical Assessment in Sub-Saharan Africa. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3470607

Asghar, N., Qureshi, S., & Nadeem, M. (2015). Institutional Quality and Economic Growth: Panel ARDL Analysis for Selected Developing Economies of Asia. South Asian Studies, 30(2), 381–403.

Asteriou, D., & Spanos, K. (2019). The Relationship Between Financial Development and Economic Growth During the Recent Crisis: Evidence from the EU. Finance Research Letters, 28, 238–245. https://doi.org/10.1016/j.frl.2018.05.011

Bai, J., & Carrion-i-silvestre, J. L. (2009). Structural Changes, Common Stochastic Trends, and Unit Roots in Panel Data. Review of Economic Studies, 76(2), 471–501. https://doi.org/10.1111/j.1467-937X.2008.00530.x

Baklouti, N., & Boujelbene, Y. (2020). An Econometric Study of The Role of The Political Stability on The Relationship Between Democracy and Economic Growth. Panoeconomicus, 67(2), 187–206. https://doi.org/10.2298/PAN170308015B

Balach, R., & Law, S. H. (2015). Effects of Financial Development, Institutional Quality , and Human Capital on Economic Performance in SAARC Countries. The Empirical Economics Letters, 14, 131–141.

Beyaert, A., García-Solanes, J., & Lopez-Gomez, L. (2019). Do Institutions of the Euro Area Converge? Economic Systems, 43(3-4), 100720. https://doi.org/10.1016/j.ecosys.2019.100720.

Bhasin, N., & Garg, S. (2020). Impact of Institutional Environment on Inward FDI: A Case of Select Emerging Market Economies. Global Business Review, 21(5), 1279-1301. https://doi.org/10.1177/0972150919856989

Breusch, T. S., & Pagan, A. R. (1980). The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics. The Review Economic Studies, 47(1), 239-253.

Canh, N. P., Schinckus, C., & Thanh, S. D. (2019). Do Economic Openness and Institutional Quality Influence Patents? Evidence from GMM Systems Estimates. International Economics, 157, 134–169. https://doi.org/10.1016/j.inteco.2018.10.002.

De Hoyos, R. E., & Sarafidis, V. (2006). Testing for Cross-Sectional Dependence in Panel Data Models. STATA Journal, 6(4), 1536867.

Demetriades, P., & Law, S. H. (2006). Finance, Institutions and Economic Development. International Journal of Finance & Economics, 11(3), 245–260.

Dumitrescu, E.-I., & Hurlin, C. (2012). Testing for Granger Non-causality in Heterogeneous Panels. Economic Modelling, 29(4), 1450–1460.

Dwumfour, R. A., & Ntow-Gyamfi, M. (2018). Natural Resources, Financial Development and Institutional Quality in Africa: Is there a Resource Curse? Resources Policy, 59, 411–426. https://doi.org/10.1016/j.resourpol.2018.08.012

Eberhardt, M., & Bond, S. (2009). Cross-section Dependence in Non-stationary Panel Models: a Novel Estimator. MPRA No. 17870/

Effiong, E. L. (2015). Financial Development, Institutions and Economic Growth : Evidence from Sub-Saharan Africa. MPRA Paper No. 66085.

Eggoh, J. C., & Khan, M. (2014). On the Nonlinear Relationship Between Inflation and Economic Growth. Research in Economics, 68(2), 133–143. https://doi.org/10.1016/j.rie.2014.01.001

Elyas, M., Shu, Y., & Asif, M. (2019). Resource Rents, Economic Growth, and the Role of Institutional Quality: A Panel Threshold Analysis. Resources Policy, 61, 293–303. https://doi.org/10.1016/j.resourpol.2019.02.011

Eren, B. M., Taspinar, N., & Gokmenoglu, K. K. (2019). The Impact of Financial Development and Economic Growth on Renewable Energy Consumption: Empirical Analysis of India. Science of the Total Environment, 663, 189–197. https://doi.org/10.1016/j.scitotenv.2019.01.323

Erum, N., & Hussain, S. (2019). Corruption, Natural Resources and Economic Growth: Evidence from OIC Countries. Resources Policy, 63, 101429. https://doi.org/10.1016/j.resourpol.2019.101429

Fromentin, V. (2017). The Long-run and Short-run Impacts of Remittances on Financial Development in Developing Countries. Quarterly Review of Economics and Finance, 66, 192–201. https://doi.org/10.1016/j.qref.2017.02.006

Girma, S., & Shortland, A. (2008). The Political Economy of Financial Development. Oxford Economic Papers, 60(4), 567-596,. https://doi.org/http://dx.doi.org/gpm040

Hamzah, M. S., Abdullah, H., Shukri, M., & Hamid, A. (2019). Economic Growth, Financial Development, and Institutions: a Review of the Literature. Journal of Social Science and Humanities, 16(8), 1–16.

Hao, Y., Wang, L. O., & Lee, C. C. (2018). Financial Development, Energy Consumption and China’s Economic Growth: New Evidence from Provincial Panel Data. International Review of Economics and Finance, 69, 1132-1151. https://doi.org/10.1016/j.iref.2018.12.006.

Hasan, I., Koetter, M., & Wedow, M. (2009). Regional Growth and Finance in Europe: Is There a Quality Effect of Bank Efficiency? Journal of Banking and Finance, 33(8), 1446–1453. https://doi.org/10.1016/j.jbankfin.2009.02.018

Huang, Y. (2010). Determinants of Financial Development. New York: Palgrave Macmillan.

Ibrahim, M., & Alagidede, P. (2018). Nonlinearities in Financial Development–Economic Growth Nexus: Evidence from Sub-Saharan Africa. Research in International Business and Finance, 46, 95–104. https://doi.org/10.1016/j.ribaf.2017.11.001

Iheonu, C., Ihedimma, G., & Onwuanaku, C. (2017). Institutional Quality and Economic Performance in West Africa. MPRA Paper No. 82212.

Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53–74.

Kacho, A. A., & Dahmardeh, N. (2017). The Effects of Financial Development and Institutional Quality on Economic Growth with the Dynamic Panel Data Generalized Moment Method: Evidence from the Organization for Economical Cooperation and Development Countries. International Journal of Economics and Financial Issues, 7(3), 461–467.

Kaufmann, D., Kraay, A., & Mastruzzi, M.. (2011). The Worldwide Governance Indicators : Methodology and Analytical Issues. Hague Journal Rule Law, 3, 220-246. https://doi.org/10.1017/S1876404511200046.

Kebede, J. G., & Takyi, P. O. (2017). Causality Between Institutional Quality And Economic Growth: Evidence From Sub-Saharan Africa. European Journal of Economic and Financial Research, 2(1), 114–131. https://doi.org/10.5281/zenodo.438146

Khan, H., Khan, S., & Zuojun, F. (2020). Institutional Quality and Financial Development: Evidence from Developing and Emerging Economies. Global Business Review, 1–13. https://doi.org/10.1177/0972150919892366

Khan, M. A. (2008). Financial Development and Economic Growth in Pakistan. South Asia Economic Journal, 9(2), 375–391. https://doi.org/10.1177/139156140800900206

Law, S. H., & Azman-Saini, W. N. W. (2008). The Quality of Institutions and Financial Development. MPRA No. 12107.

Law, S. H., & Azman-Saini, W. N. W. (2012). Institutional Quality, Governance, and Financial Development. Economics of Governance, 13(3), 217–236. https://doi.org/10.1007/s10101-012-0112-z

Lucas Jr, R. E. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3-42. https://doi.org/10.1016/0304-3932(88)90168-7.

Maruta, A. A., Banerjee, R., & Cavoli, T. (2020). Foreign Aid, Institutional Quality and Economic Growth: Evidence from The Developing World. Economic Modelling, 89, 444–463. https://doi.org/10.1016/j.econmod.2019.11.008.

Nawaz, S., Iqbal, N., & Khan, M. A. (2014). The Impact of Institutional Quality on Economic Growth: Panel Evidence. The Pakistan Development Review, 53(1), 15–31.

Nguyen, Q. H. (2019). Growth Model with Financial Deepening and Productivity Heterogeneity. Japanese Economic Review, 70(1), 123–140. https://doi.org/10.1111/jere.12180

Ntow-Gyamfi, M., Bokpin, G. A., Aboagye, A. Q. Q., & Ackah, C. G. (2019). Financial Development, Institutional Quality and Inclusive Growth in Africa. Global Business Review, 1-24. https://doi.org/10.1177/0972150919875367

Paramati, S. R., & Roca, E. (2019). Does Tourism Drive House Prices in the OECD Economies? Evidence from Augmented Mean Group Estimator. Tourism Management, 74, 392–395. https://doi.org/10.1016/j.tourman.2019.04.023

Pesaran, M. H. (2004). General Diagnostic Tests For Cross Section Dependence in Panels. IZA DP No. 1240.

Raghutla, C., Thokala, S., Chittedi, K. R., Chandrashekar, R., Sampath, T., & Chittedi, K. R. (2018). Financial Development, Trade Openness and Growth in India. Theoretical and Applied Economics, XXV(1), 113–124.

Rani, R., & Kumar, N. (2019). On the Causal Dynamics Between Economic Growth, Trade Openness and Gross Capital Formation: Evidence from BRICS Countries. Global Business Review, 20(3), 795–812. https://doi.org/10.1177/0972150919837079

Raza, S. A., Shah, N., & Arif, I. (2019). Relationship Between FDI and Economic Growth in the Presence of Good Governance System: Evidence from OECD Countries. Global Business Review, 097215091983348. https://doi.org/10.1177/0972150919833484

Salman, M., Long, X., Dauda, L., & Nyarko, C. (2019). The Impact of Institutional Quality on Economic Growth and Carbon Emissions: Evidence from Indonesia, South Korea and Thailand. Journal of Cleaner Production, 241, 118331. https://doi.org/10.1016/j.jclepro.2019.118331

Skare, M., Sinković, D., & Rochoń, M. P. (2019). Financial Development and Economic Growth In Poland 1990-2018. Technological and Economic Development of Economy, 25(2), 103–133. https://doi.org/10.3846/tede.2019.7925

Sobiech, I. (2019). Remittances, Finance and Growth : Does Financial Development Foster the Impact of Remittances on Economic Growth ? World Development, 113, 44–59. https://doi.org/10.1016/j.worlddev.2018.08.016.

Song, C. Q., Chang, C. P., & Gong, Q. (2020). Economic growth, corruption, and financial development: Global evidence. Economic Modelling, December 2019. https://doi.org/10.1016/j.econmod.2020.02.022

Thanh, S. D. (2015). Threshold Effects of Inflation on Growth in the ASEAN-5 Countries: A Panel Smooth Transition Regression Approach. Journal of Economics, Finance and Administrative Science, 20(38), 41–48.

Topcu, E., Altinoz, B., & Aslan, A. (2020). Global Evidence from The Link Between Economic Growth, Natural Resources, Energy Consumption, and Gross Capital Formation. Resources Policy, 66, 101622. https://doi.org/10.1016/j.resourpol.2020.101622.

Yahyaoui, A., Ibrahim, M., & Saggaf, A. (2019). Effects of Financial Development and Institutional Quality on the Economic Growth in The Arabian Gulf states : A Panel Cointegration Analysis. International Journal of Economics and Financial Issues, 9(1), 203–211.

Yang, F. (2018). The Impact of Financial Development on Economic Growth in Middle-Income Countries. Journal of International Financial Markets, Institutions and Money, 59, 74–89. https://doi.org/10.1016/j.intfin.2018.11.008




DOI: https://doi.org/10.15408/etk.v20i1.16177 Abstract - 0 PDF - 0

Refbacks

  • There are currently no refbacks.




Hasil gambar untuk doaj

/public/site/images/rianto-arif/logogaruda-kecil_94 Dimensions | The Next Evolution in Linked Scholarly Information  Academic Keyoa-library CrossRefMoraRefBASE-Search OAJI Open Archives Initiative

Hasil gambar untuk neliti.com

View My Stats

 

E-ISSN: 2461-0771 P-ISSN: 1412-8969 Free counters!

License

This work is licensed under CC BY-SA

© All rights reserved 2015.