The effect of institutional factors on financial deepening: evidence from 50 African countries

Sanga, Bahati; Aziakpono, Meshach

doi:10.1108/jbsed-12-2021-0175

Cited by 21 publications

(14 citation statements)

References 67 publications

(169 reference statements)

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“…The GDP per capita has positive influence on financial development (Ehigiamusoe et al, 2021). Institutional quality influences financial deepening in Africa (Sanga & Aziakpono, 2022).…”

Section: Datamentioning

confidence: 99%

The impact of technological innovations on financial deepening: Implications for SME financing in Africa

Sanga

Aziakpono

2022

African Development Review

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This paper examines whether technological innovations such as information and communication technology infrastructure, mobile phone subscriptions, secure internet servers and the number of automated teller machines and bank branches increased financial deepening in 43 African countries for the period 2010-2019. The study employs panel corrected standard errors, fixed effects and quantile regressions for empirical analysis. The results show that technological innovations have a positive and significant influence on financial deepening in Africa in terms of banks' mobilisation of deposits and allocation of credit to enterprises. Furthermore, the technological indicators have a strong and positive effect on higher levels of bank credit to the private sector than lower levels. As for bank deposits, only the number of branches was found to have significant and positive effects at a high level of bank deposits compared with a low level. These results imply that African governments and development partners can leverage ICT developments to increase financial deepening and reinvigorate debt financing, which is the primary funding source for small and medium-size enterprises. | INTRODUCTIONSmall and medium-size enterprises (SMEs) have better access to finance in an economy with financial deepening. Several empirical studies have confirmed that financial deepening creates a better economic environment for SMEs by (i) alleviating financing constraints (Beck, 2013), (ii) enabling the creation of new businesses (Cao-Alvira & Palacios-Chacón, 2021) and (iii) stimulating different economic opportunities and entrepreneurship activities (Dutta & Meierrieks, 2021;Koloma, 2021;Munemo, 2018). Hence, understanding the roles played by technological innovations in promoting financial deepening, which in turn facilitate SME financing in Africa, will be invaluable for developmental policies. SMEs can spur transformative and sustainable economic growth and social development in developing countries if they are fully capitalised and have access to financial services (Moreira, 2016; World Bank, 2020).The recent proliferation of mobile phone services, access to internet and broadband services, and the fourth industrial revolution have increased the use of emerging technologies in financial services (Del Gaudio et al., 2021;Liu et al., 2020;Mhlanga, 2020). These developments in information and communication technology (ICT) have increased the accessibility and affordability of financial services and created an environment ripe for disruptive technologies.

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“…The GDP per capita has positive influence on financial development (Ehigiamusoe et al, 2021). Institutional quality influences financial deepening in Africa (Sanga & Aziakpono, 2022).…”

Section: Datamentioning

confidence: 99%

The impact of technological innovations on financial deepening: Implications for SME financing in Africa

Sanga

Aziakpono

2022

African Development Review

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“…Deep research on this interrelationship demonstrates that EA moderates the link between institutions and economic growth (Baumol, 1990; Ragmoun, 2019). This means that developed entrepreneurial activity combined with a perfect institutional environment stimulates economic growth (Acs et al , 2018; Sanga and Aziakpono, 2022).…”

Section: Related Literature and Hypothesis Developmentmentioning

confidence: 99%

Institutional quality, unemployment, economic growth and entrepreneurial activity in developed countries: a dynamic and sustainable approach

Ragmoun

2022

RIBS

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Purpose This paper aims to analyse the impact of institutional quality, economic factors and unemployment on entrepreneurial activity. The dynamic approach adopted in this study permits to evaluate the simultaneous influence of specific factors on total entrepreneurial activity. Design/methodology/approach A quantitative approach through a panel vector autoregression analysis was adopted to take into account possible endogeneity issues, and a short-run Granger test was used to test causality between variables to fill the theoretical and empirical gap about the joined and dynamic effect of institutional quality, economic factors and unemployment on total entrepreneurship activity as a dependent variable. Findings The use of a dynamic estimation approach demonstrates that three kinds of relative effects exist: durable and positive effects between industrial production index (IPI), stability and self-employment, a limited positive effect which exists during a predeterminant period between dimensions of institutional quality and unemployment rate (UR) and finally negative effects between IPI and UR. Research limitations/implications In general, this study identifies three main effects: negative, temporary positive and perpetual positive. This is the same conclusion for the link between self-employment rates (SER) and institutional quality, measured by six dimensions. Three of these dimensions are especially important: political stability and the absence of violence, governmental effectiveness and regulatory quality. Practical implications In light of this study’s results and contrary to the idea admitted about the negative effect of unemployment on entrepreneurial activity, it seems that a relatively positive effect exists. By relative, the author means during a determinant period. It also has to be remembered that entrepreneurial activity was appreciated by the SER according to the recommendation of many previous researchers discussed at the beginning of this paper. Based on the model, three levels of relations emerge. This permits this study to dress a hierarchical list of alternatives to promote entrepreneurial activity. Economic policymakers have to reconsider the importance of the UR as the best occasion to create firms if good institutions and economic support are provided. Good governance and stability are the most important institutional determinants with a long positive effect. This conclusion suits Glaeser and Saks (2006) as well as Ojeka et al. (2019). Social implications This research offers considerable scientific evidence to make decisions and orient decisions-makers about policies adopted to increase institutional quality, reducing unemployment and stimulate economic activity, but it is still necessary to reconsider these results for developing countries. It is hoped that future researchers enrich and reinforce the model to provide a critical pathway for successful entrepreneurship activity in this new normal. In the end, this crisis can be also treated as a good occasion to innovate and reconsider the thinking process to manage and operate in the economic world. Originality/value This study’s contribution is to help and assist economic policymakers to be aware of the relative importance of such determinants at the country level. The introduction of the relative importance of time is in agreement with the concept of entrepreneurial opportunity.

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“…RQ has no meaning in promoting economic growth in Middle East and Northern African-MENA countries [1]. RQ has a relevant role in promoting financial institutions in African countries [2], [3], [4]. There is a positive relationship between RQ and environmental degradation in Sub-Saharan African countries [5].…”

Section: Literature Reviewmentioning

confidence: 99%

“…Synthesis of the Literature Review by Main Themes RQ , Economic Growth and Development [1], [8], [12], [15], [21], [4], [25] RQ, Financial Sector and Financial Markets [2], [3], [16], [17], [22], [9], [23], [27] RQ, Environment and Energy [5], [6] , [10], [11], [24], [26] Miscellaneous [7], [13], [14], [18] RQ, Social and Demographic Issues [19], [20] 3. We find that the level of Regulatory Quality is positively associated to the following variables i.e.…”

Section: Literature Reviewmentioning

confidence: 99%

The Regulatory Quality and ESG Model at World Level

Costantiello¹,

Leogrande²

2023

SSRN Journal

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The effect of institutional factors on financial deepening: evidence from 50 African countries

Cited by 21 publications

References 67 publications

The impact of technological innovations on financial deepening: Implications for SME financing in Africa

The impact of technological innovations on financial deepening: Implications for SME financing in Africa

Institutional quality, unemployment, economic growth and entrepreneurial activity in developed countries: a dynamic and sustainable approach

The Regulatory Quality and ESG Model at World Level

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