Finance-institution-growth trilogy: time-series insights from South Africa

Abstract

PurposeThis study examines the moderating effect of institutional quality on the finance-growth nexus in South Africa from 1986 to 2015.Design/methodology/approachThis study adopts unit root tests, cointegration test and autoregressive distributed lag (ARDL) model.FindingsThe findings reveal that institutional quality constitutes a drain to the growth benefits of financial development (FD) in South Africa in the short-run while FD and institutional quality converge to enhance growth process of the country in the long-run. Also, the threshold of institutional quality beyond which institution stimulates strong positive impact of finance on growth is estimated to be 6.42 on a 10-point scale.Practical implicationsThis study, therefore, suggests that institutional quality matters in the way FD influences economic growth in South Africa. Hence, stakeholders are encouraged to trace and block lapses and loopholes in the institutional framework guiding financial system in South Africa so as to maximize growth benefits of FD.Originality/valueThis study contributes to the extant studies by introducing a country-specific analysis into the empirical examination of how institutional quality influences the impact of FD on economic growth. Also, this study deviates from other studies by determining the threshold of institutional quality beyond which FD stimulates strong positive effect on economic growth in South Africa

Asymmetric Effects of Remittances on Economic Growth in Nigeria: Evidence From Non-linear ARDL Analysis

“…The coefficients of error-correction terms ( ) are negative and statistically significant in both the linear and nonlinear results (see Tables 7 and 8). This confirms the existence of long-run relationship among the variables (Olaniyi & Adedokun, 2020;Ntembe et al, 2018;Banerjee et al, 1998). These results are consistent with the outcomes of ARDL bound tests for linear and nonlinear models as earlier presented in Table 5.…”

“…Thus, the null hypothesis of no long-run relationship among the variables is rejected. In a plain language of economics, this suggests that if the variables drift apart and behave differently as a result of factors that causes disequilibrium and divergences in the short-run; the existence of cointegration implies evidence of convergence is guaranteed after a series of distortions and shocks along long-run dynamics (Olaniyi & Adedokun, 2020). It could also be affirmed that long-run estimates are more predictable as indicated by the results of unit root tests and cointegration.…”

“…Following the suggestions of extant studies (Olaniyi & Adedokun, 2020;Olaniyi & Oladeji, 2020;Mohanty, 2019;Ntembe et al, 2018), the short and long-run estimates of linear and nonlinear of error-correction version of ARDL are subjected to a series of robustness checks and diagnostic tests so as to ascertain the reliability of the estimates. Thus, the synopsis of residual diagnostics tests of normality, serial correlation, heteroskedascity and the Ramsey reset test for model specification are provided in Table 9.…”

Interplay between financial sector and institutional framework in the economic growth process of Kenya

“…The only close studies are that of Aluko and Ibrahim (2020a, 2020b) and Olaniyi and Oladeji (2020) which examined the threshold of institution in the finance‐growth nexus in a panel of 28 sub‐Saharan African countries and 13 West African countries, respectively. A recent study by Olaniyi and Adedokun (2020) also examined the threshold of institutional quality in the finance‐growth nexus in South Africa. The threshold of institutional quality tends to vary across countries in the region because of peculiar institutional and financial development in each country/subregion of SSA.…”

Empirical Study on CO2 Emissions, Financial Development and Economic Growth of the BRICS Countries

“…In relation to exogenous research, Olaniyi et al [4] used the autoregression distribution lag (ARDL) model to examine South Africa's annual data from 1986 to 2015. Their research found that the quality of institutions is very important in the way that financial development affects South Africa's economic growth; it determines the threshold of system quality.…”