This paper contributes to the understanding of the other neglected effects of financial development by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 Sub Saharan African countries over the period 1991-2015. Empirical evidence is based on Ordinary Least Squared, Fixed effects and system Generalized Method of moment. The results show that financial development measured by broad money and domestic credit to private sector have a negative and statistically significant effect on the informal economy. This clearly suggests that financial development reduces the size of the informal economy.
This paper contributes to the understanding of the other neglected effects of foreign direct investment (FDI) by analysing how FDI affects financial development in the short run and long run for a panel of 49 African countries over the period 1990-2016. The empirical evidence is based on a pooled mean group approach. With three panels differentiated by income level, the following findings are established: first, while there is a positive and significant long-run relationship between FDI and financial development in Africa, in the short run the effect of FDI on financial development is negative. Second, the effect of FDI is positive and significant in the long run in the three sub-samples. However, in the short run, the effect of FDI is negative and significant in lower-income countries and non-significant in lower-middle-income and uppermiddle-income countries. Overall we find strong evidence supporting the view that FDI promotes financial development in African countries in the long run. * Njangang Henri (corresponding author), The The authors are indebted to the editor and two anonymous reviewers for their useful comments and suggestions that substantially improved the quality of this paper. All remaining errors are ours.
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