Financial Integration and Economic Growth in the COMESA and SADC Regions

Abstract

This study used panel data methods to examine the relationship between financial integration and economic growth in the COMESA and SADC regions. Using Foreign direct investment (FDI) and portfolio flows as a share of GDP, Chinn-Ito index of financial openness and debt flows as measures of financial integration, the study found that the relationship between financial integration and growth is largely insignificant in the combined sample of COMESA and SADC regions. However, the relationship changes when the two regions are separated. Whereas two of the indicators of financial integration are significant in the COMESA region, only one indicator of financial integration is significant in the SADC region implying that financial integration is more important in the COMESA region than in the SADC region. The results support the growth retarding theories of financial globalization and the convergence hypothesis in the COMESA region while the neoclassical trade theories find strong support in the SADC region. These results imply, first, that financial integration has different growth effects for different regional groupings and thus integration policies should not be universally applied. Second, these results imply that further enhancement of trade integration policies offer more promising outcomes for economic growth in the SADC region than financial integration policies while the converse is true for the COMESA region.

Effects of International Financial Integration on Economic Growth in Developing Countries: Heterogeneous Panel Evidence from Seven West African Countries

“…Ray (2012), in the context of India, shows instead that there is a causal relationship from economic growth to international financial integration. Misati et al (2015) analyse the relationship in two African regions (COMESA and SADC) and find mixed and regionally varying results. While two of the indicators of financial integration are significant in the COMESA region, only one indicator is significant for SADC.…”

Financial integration and bank profitability in five regional economic communities in Africa

“…1. See Andersen and Tarp (2003) and Masati et al (2015) for studies where results vary when samples a limited to regional and sub-regional samples respectively.…”

The finance–growth nexus in the Middle East and Africa: A comparative meta‐analysis

“…Over the last two decades, several African and Middle Eastern countries have developed and liberalized their financial sectors by lifting bank interest rate caps, reducing reserve requirements, easing entry barriers, and privatizing state‐owned commercial banks (for details, see Misati & Nyamongo, 2012; Misati et al, 2015; Adeniyi et al, 2015). The purpose of these measures is to move away from state interventions in financially repressed economies and encourage national economic growth (Demirgüç‐Kunt & Detragiache, 1998).…”

“…For instance, some studies (Abu‐Bader & Abu‐Qarn, 2008; Fowowe, 2008; Mohieldin et al, 2019) underline a strong association between economic growth and FD in African countries, whereas others (Aziakpono, 2005; Ben Naceur & Ghazouani, 2007; Gazdar & Cherif, 2015) view the same nexus as negative. On the other hand, Misati et al (2015) and Assefa and Mollick (2017) discovered that financial deepening does not significantly affect economic growth; the association only exists in the presence of other control variables such as institutional variables and human capital (Kutan et al, 2017; Misati & Nyamongo, 2012).…”