Domestic financial liberalization and economic growth nexus: the role of corruption

Abstract

Purpose This study aims to examine the effect of domestic financial deregulation on economic growth in five selected sub-Saharan African nation (SSA). The paper also explored the interaction effect of domestic financial deregulation and corruption on growth. Design/methodology/approach The paper used Driscoll and Kraay standard errors based on the pooled ordinary least squares, which is robust to heteroskedasticity, cross-sectional dependence and autocorrelation. Findings The outcome indicates that domestic financial liberalization has accelerated growth in SSA economies. Similarly, evidence reveals that foreign direct investment and credit to the private sector by banks accelerate growth. However, evidence indicates that labour and capital negate growth. Also, the interaction term for domestic financial liberalization and corruption shows a negative influence on growth. The study, therefore, recommends that well-tailored policy design and strategy be implemented to provide a smooth and conducive business environment for investors. Originality/value Numerous studies have analysed the influence of financial deregulation on growth; however, none have examined the effects of domestic financial deregulation on growth in the context of SSA. Also, no studies have explored the interaction effect of domestic financial deregulation and corruption on growth.

Cultural values, national personality characteristics, and intelligence as correlates of corruption: A nation level analysis

“…Economists and social scientists generally see that corruption has adverse effects on economic growth as well as on political and social development ( Johnston, 1998 ; Shen, 2007 ). Corruption has adverse effects in many political and economic aspects, including the effectiveness of government ( Berkovich, 2016 ), economic growth ( Haruna and Abu Bakar, 2021 ; Song et al., 2021 ), foreign investments ( Ledyaeva et al., 2013 ; Zhu and Shi, 2019 ), tax compliance and revenue ( Bertinelli et al., 2020 ; Irawan and Utama, 2021 ), quality of infrastructure ( Bertinelli et al., 2020 ), and public services including education and health care ( Nguyen et al., 2017 ; Setyaningrum et al., 2017 ), and effectiveness of aid-funded projects ( Shen, 2007 ). In addition to these direct effects on an economy and a political system, corruption reduces citizens' trust in their government's ability to provide equal services for all citizens ( Khan et al., 2021 ; Silal and Saha, 2021 ).…”

Greening South Asia with Financial Liberalization, Human Capital, and Militarization: Evidence from the CS-ARDL Approach

“…Accordingly, their focus tends to increase wealth without employing any pollution abatement policy. 110,111 In the presence of a weak rule of law and bureaucratic quality, resource-rich regions (like South Asia) are less likely to improve their genuine saving or sustainable development, despite the investment in human capital 137 and financial openness. 138 Since South Asia is considered notorious for bribe-dispensing entrepreneurs, money-seeking bureaucrats, and influence-peddling politicians, 139 more financial openness provides these individuals a certain cushion for wealth expropriation confining the financial liberalization to only "quantity effect".…”

“…108 In more open economies, the negative effect of corruption on economic development is stronger. 109,110 Owing to the misallocation of resources in more open economies, human capital in these countries tend to engage in rent-seeking behavior. An unjust reward structure emerged from corrupt systems that support less efficient labor, leading to the depletion of knowledge and skills accumulation.…”

Financial liberalization and economic growth in the ECOWAS Sub-Region

“…Prior studies (Orji et al, 2015;Haruna & Abu Bakar, 2021;Kudaisi et al, 2021) reported that increased liberalization of an economy tends to accelerate economic growth, particularly through greater resource augmentation and mobilization and higher degree of greater competition. Financial liberalization involves activities that eliminate constraints put on the financial and banking industries (Latib & Mohamad, 2023).…”