Governance Quality and Financial Development in Africa

Bekana, Dejene Mamo

doi:10.1016/j.wds.2023.100044

Cited by 14 publications

(11 citation statements)

References 28 publications

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“…It is worth noting that, unlike the isolated and direct effects, the interactions strengthen the impact on competitiveness in all models. These results are similar to those obtained by Demetriades and Law (2006), Kim et al (2010), Kane and Diandy (2019) and Bekana (2023). We can conclude that it is only in the long run that WAEMU countries can have the quality of institutions which can positively affect the financial system and guarantee competitive economies.…”

Section: Resultssupporting

confidence: 90%

“…For countries with more advanced financial systems, FD leads to growth, while for countries with less structured financial markets, growth leads to FD if there is a parallel improvement in institutions. Following these authors, while Abaidoo and Agyapong (2022), through a study of SSA economies, show that institutional quality improves the pace of FD among the economies of the subregion, Bekana (2023) specifies that it is the development of governance institutions that favor financial sector development. In the same vein, Pradhan et al (2023) use a vector error correction model (VECM) and the Granger causality method on a sample of 79 low-income countries to show that FD and institutional quality are mutually reinforcing in the short term.…”

Section: Review Of the Literaturementioning

confidence: 99%

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Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

Sigue,

Drabo,

Woni

et al. 2023

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Purpose This paper aims to assess the short- and long-run effects of the interaction between institutional quality and financial development (FD) on the competitiveness of the WAEMU economy over the period 2007–2018. Design/methodology/approach The methodology consisted of cross-referencing a synthetic indicator of FD with indicators of institutional quality and then estimating an auto regressive distributed lag model. Findings The results of the pooled mean group and dynamic fixed effect estimation show a positive and significant impact of this interaction on the competitiveness of the economy in the long run. In the short run, the results are quite similar to those in the long run for the direct effects but different for the crosses. Also, the analysis of country specificity shows that the results are similar to those in the short run since the interaction between FD and institutional quality (political stability and government effectiveness) negatively affects the competitiveness of Burkina Faso, Ivory Coast and Mali, and positively affects the competitiveness of Benin and Senegal. Social implications These results suggest the need for effective policies to improve the quality of institutions to enhance the mobilization of financial resources through FD to ensure the competitiveness of economies. Improving the quality of the political and institutional environment is a prerequisite for economic competitiveness. Originality/value The paper is in line with the New Institutional Economics that developed in the 1970s. This referential framework is a heterogeneous body of work that encompasses works whose common point is the determination of the role of institutions in economic coordination. Unlike previous studies, which have focused on the contribution of the interaction between institutional quality variables and FD on economic growth, this paper analyzes the effects of this interaction on economic competitiveness. It, therefore, constitutes a contribution to this literature and aims primarily to fill this gap.

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Section: Resultssupporting

confidence: 90%

Section: Review Of the Literaturementioning

confidence: 99%

Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

Sigue,

Drabo,

Woni

et al. 2023

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“…The results show the instrumented institutional quality, and its constituent factors have a significant positive impact on the financial system efficiency and are consistent with the baseline results. These findings also complement the growing body of literature on institutional quality and various dimensions of financial development for example, [ 9 , 11 – 13 , 20 , 22 , 27 , 53 , 55 , 62 , 63 ] among others. Overall, after addressing endogeneity our results still hold.…”

Section: Resultssupporting

confidence: 79%

“…The positive association between the institutional quality and financial development has also been corroborated by Acemoglu and Johnson [8], Law and Azman-Saini [9], Knack and Xu [10], Khan, Kong [11], Khan, Khan [12], and Bekana [13] among others. However, the extant institutional quality-financial development literature is mainly focused on the financial system's depth and access dimensions and has largely ignored efficiency of financial system, despite being an important dimension of the financial system, which may be partly due to the lack of required comprehensive data for assessment.…”

Section: Introductionmentioning

confidence: 61%

Country-level institutional quality and financial system efficiency: An international evidence

Khan,

Khan

et al. 2023

PLoS ONE

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The optimum economic outcome of financial system development depends on its level of efficiency. The purpose of this study is to investigate the effect of institutional quality on financial system efficiency. For empirical analysis, we have used a panel dataset of 108 countries from 1996–2020 and employed fixed effect regression and two stages least squares (2SLS) regression methods. The empirical results show that institutional quality has a significant positive effect on financial system efficiency. Particularly all the constituting elements—voice and accountability, political stability and absence of violence, regulatory quality, government effectiveness, rule of law, and control of corruption—of institutional quality are found to have a significant positive impact on financial system efficiency. Moreover, we found that the effect of institutional quality is more pronounced in countries with low-income levels and strong institutional quality. These findings are robust across several robustness tests conducted using additional controls, alternative methodologies, an alternative measure of institutional quality, and financial system efficiency. The results of the study suggest that policy makers should prioritize both enhancing and sustaining institutional quality to promote the efficiency of the financial system, which is crucial for sustainable growth and development.

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“…Their findings, corroborated by this paper, underscore the necessity of prioritising governance quality to ensure the prosperity of SSA economies. Similarly, Bekana (2023) emphasises the pivotal role of governance quality in an economy, noting its significant influence on financial development. The author suggests that this factor has the potential to expand tax generation and enhance fiscal space, a conclusion that aligns with the findings of the current study.…”

Section: Principal Component Analysismentioning

confidence: 99%

Impact of Output Gap, COVID-19, and Governance Quality on Fiscal Space in Sub-Saharan Africa

Katuka,

Mudzingiri

2023

Economies

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This study examined the determinants of fiscal space within the Sub-Saharan Africa (SSA) region, utilising a panel of 33 countries from 2005 to 2021. The paper applied the panel threshold, difference, and system generalised method of moments (GMM) regression techniques. The empirical results found evidence of constrained fiscal space and poor governance in Central, Western, and Eastern Africa. The results further unveiled that an enhancement in governance indicators beyond −0.23 for the governance index, −0.15 for control of corruption, −0.98 for the rule of law, −0.37 for regulatory quality, −0.15 for voice and accountability, +0.36 for political stability, and −0.61 for government effectiveness, respectively, increase fiscal space. Moreover, the study concluded that the output gap, COVID-19, trade openness, and economic growth impact fiscal space availability in Central, Western, Southern, and Eastern Africa. The paper investigated whether the COVID-19 pandemic and governance quality significantly influenced fiscal space within SSA. We strongly recommend enhancement in all facets of governance through comprehensive restructuring of governance policies across all SSA countries. Another key recommendation is fostering trade openness to expand tax revenue generation and broaden the tax base, thereby providing the continent with greater fiscal space and improved resilience to unforeseen shocks.

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Governance Quality and Financial Development in Africa

Cited by 14 publications

References 28 publications

Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

Country-level institutional quality and financial system efficiency: An international evidence

Impact of Output Gap, COVID-19, and Governance Quality on Fiscal Space in Sub-Saharan Africa

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