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This study examines the moderating effect of inflation on the financegrowth nexus in the West African region during 1980-2014. We find that the linear financial development has a positive impact on economic growth, while the interaction term between financial development and the inflation rate has a negative impact on growth. The marginal effect of financial development evaluated at the minimum level of inflation rate is positive, while that evaluated at the maximum level is negative, suggesting that the impact of finance on growth varies with the level of inflation. The inflation threshold level is found at 5.62%. When inflation rises above this level, the total effect of finance on growth turns negative. We also find that the marginal effects of financial development computed at the maximum level of inflation are negative in the high-inflationary countries but positive in the low-inflationary countries. The implication of these findings is that, in the West African region, an increase in financial development and a decrease in inflation appear to have greater long-run economic benefits than a simultaneous increase in both variables.

This paper examines the effects of macroeconomic stability on financial development in the West African region. Macroeconomic stability is measured based on five Maastricht Criteria’s variables namely inflation rate, real exchange rate, government debt, fiscal deficit and real interest rate. The study employs dynamic models on the panel data. We find that macroeconomic stability has significant effects on financial development in the region. Specifically, inflation rate, real exchange rate and fiscal deficit have negative effects, while the effects of government debt and real interest rate are positive. The implication of this study is that macroeconomic stability variables are determinants of financial development. Hence, developing economies should strive to achieve macroeconomic stability in order to drive financial development, with a view to achieving sustainable economic development.

PurposeThis paper aims to examine the non-linear impact of inflation on financial development, and the moderating role of GDP in the relationship between inflation and financial development in a panel of 125 countries.Design/methodology/approachIt employs the dynamic common correlated effects (CCE) that can control for heterogeneity and cross-sectional dependence. This technique enables us to conduct both panel and country-specific analyses.FindingsThough there is no significant evidence that inflation has a non-linear impact on financial development in the panel, the country-specific estimations reveal that inflation has a non-linear impact on financial development in 66 countries. The results also show that GDP mitigates the detrimental effect of inflation on financial development in 45 countries. An insight into the non-linear relationship between inflation and financial development is crucial for policy decision-making. Besides, knowledge of the moderating role of GDP in the relationship between financial development and inflation is fundamental for policy formulations.Originality/valueAlthough the extant literature has shown that the inflation rate plays a negative role in financial development, the literature overlooked the non-linear relationship between the two variables. Besides, the studies have not considered the role of GDP in moderating the impact of the inflation rate on financial development. This study fills these gaps in the existing body of finance literature.