IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v60y2018icp18-26.html
   My bibliography  Save this article

Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital?

Author

Listed:
  • Ibrahim, Muazu
  • Sare, Yakubu Awudu

Abstract

This study examines the determinants of financial sector development in Africa relying on data for 46 countries spanning 1980–2015 using the system generalized method of moments. More importantly, we investigate the issue of whether the interaction of trade openness and human capital can explain financial development. Our findings show that, while human capital robustly influence financial development, trade openness robustly matter more for private credit than domestic credit. The interactive terms of openness and human capital are significantly related to financial development. Evaluation of the marginal effects reveal that trade openness (human capital) has greater impact on private (domestic) credit than human capital (trade openness). Our evidence largely suggests that human capital accumulation and trade openness are substitutable in influencing financial development in Africa.

Suggested Citation

  • Ibrahim, Muazu & Sare, Yakubu Awudu, 2018. "Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital?," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 18-26.
    • Handle: RePEc:eee:ecanpo:v:60:y:2018:i:c:p:18-26
    DOI: 10.1016/j.eap.2018.09.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592618301309
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2018.09.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Emmanuel Kumi & Muazu Ibrahim & Thomas Yeboah, 2017. "Aid, Aid Volatility and Sectoral Growth in Sub-Saharan Africa: Does Finance Matter?," Journal of African Business, Taylor & Francis Journals, vol. 18(4), pages 435-456, October.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    3. Franklin Allen & Elena Carletti & Robert Cull & Jun Qian & Lemma Senbet & Patricio Valenzuela, 2014. "Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya," NBER Chapters, in: African Successes, Volume III: Modernization and Development, pages 13-62, National Bureau of Economic Research, Inc.
    4. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law, endowments, and finance," Journal of Financial Economics, Elsevier, vol. 70(2), pages 137-181, November.
    5. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    6. Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, vol. 89(2), pages 285-296, July.
    7. Siong Hook Law & Muzafar Shah Habibullah, 2009. "The Determinants Of Financial Development: Institutions, Openness And Financial Liberalisation," South African Journal of Economics, Economic Society of South Africa, vol. 77(1), pages 45-58, March.
    8. Ogundari, Kolawole & Awokuse, Titus, 2018. "Human capital contribution to economic growth in Sub-Saharan Africa: Does health status matter more than education?," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 131-140.
    9. Ibrahim, Muazu & Alagidede, Paul, 2018. "Effect of financial development on economic growth in sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1104-1125.
    10. Kangni Kpodar & Raju Jan Singh & Dhaneshwar Ghura, 2009. "Financial Deepening in the CFA Franc Zone: The Role of Institutions," Post-Print hal-00450079, HAL.
    11. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    12. Ibrahim, Muazu & Alagidede, Paul, 2017. "Financial sector development, economic volatility and shocks in sub-Saharan Africa," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 484(C), pages 66-81.
    13. Patrick Honohan & Thorsten Beck, 2007. "Making Finance Work for Africa," World Bank Publications - Books, The World Bank Group, number 6626.
    14. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    15. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    16. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    17. Mihasonirina Andrianaivo & Charles Amo Yartey, 2009. "Understanding the growth of african financial markets," Post-Print halshs-00422047, HAL.
    18. J. François OUTREVILLE, 1999. "Financial Development, Human Capital And Political Stability," UNCTAD Discussion Papers 142, United Nations Conference on Trade and Development.
    19. Muazu Ibrahim & Paul Alagidede, 2017. "Financial Development, Growth Volatility and Information Asymmetry in Sub†Saharan Africa: Does Law Matter?," South African Journal of Economics, Economic Society of South Africa, vol. 85(4), pages 570-588, December.
    20. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    21. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    22. Muazu Ibrahim & Emmanuel Kumi & Thomas Yeboah, 2015. "Greasing or sanding the wheels? Effect of corruption on economic growth in sub-Saharan Africa," African Journal of Economic and Sustainable Development, Inderscience Enterprises Ltd, vol. 4(2), pages 157-173.
    23. Svaleryd, Helena & Vlachos, Jonas, 2002. "Markets for risk and openness to trade: how are they related?," Journal of International Economics, Elsevier, vol. 57(2), pages 369-395, August.
    24. Mihasonirina Andrianaivo & Charles Amo Yartey, 2009. "Understanding the Growth of African Financial Markets," IMF Working Papers 2009/182, International Monetary Fund.
    25. Adeniyi, Oluwatosin & Oyinlola, Abimbola & Omisakin, Olusegun & Egwaikhide, Festus O., 2015. "Financial development and economic growth in Nigeria: Evidence from threshold modelling," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 11-21.
    26. Adams, Samuel & Opoku, Eric Evans Osei, 2015. "Foreign direct investment, regulations and growth in sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 48-56.
    27. Awudu Sare Yakubu & Anthony Q. Q. Aboagye & Lord Mensah & Godfred A. Bokpin, 2018. "Effect of financial development on international trade in Africa: Does measure of finance matter?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(8), pages 917-936, November.
    28. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    29. Mr. Antonio David & Mr. Montfort Mlachila & Ashwin Moheeput, 2014. "Does Openness Matter for Financial Development in Africa?," IMF Working Papers 2014/094, International Monetary Fund.
    30. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chris Doucouliagos & Jakob de Haan & Jan-Egbert Sturm, 2022. "What drives financial development? A Meta-regression analysis [A new database of financial reforms]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 840-868.
    2. Ibrahim, Muazu & Alagidede, Paul, 2018. "Effect of financial development on economic growth in sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1104-1125.
    3. Jean-Pierre Allegret & Sana Azzabi, 2014. "Intégration financière internationale et croissance économique dans les pays émergents et en développement : le canal du développement financier," Revue d’économie du développement, De Boeck Université, vol. 22(3), pages 27-68.
    4. Effiong, Ekpeno, 2015. "Financial Development, Institutions and Economic Growth: Evidence from Sub-Saharan Africa," MPRA Paper 66085, University Library of Munich, Germany.
    5. Paul Alagidede, 2018. "Effect of Financial Development on Economic Growth in sub–Saharan Africa: Does Sectoral Growth Matter?," Working Papers 754, Economic Research Southern Africa.
    6. Ahmad Hassan Ahmad & Christopher Green & Fei Jiang, 2020. "Mobile Money, Financial Inclusion And Development: A Review With Reference To African Experience," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 753-792, September.
    7. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, School of Economics, University of Bristol, UK.
    8. Nasreen, Samia & Mahalik, Mantu Kumar & Shahbaz, Muhammad & Abbas, Qaisar, 2020. "How do financial globalization, institutions and economic growth impact financial sector development in European countries?," Research in International Business and Finance, Elsevier, vol. 54(C).
    9. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.
    10. Christiansen, Lone & Schindler, Martin & Tressel, Thierry, 2013. "Growth and structural reforms: A new assessment," Journal of International Economics, Elsevier, vol. 89(2), pages 347-356.
    11. Menyelim M. Chima & Abiola Ayopo Babajide & Alex Adegboye & Segun Kehinde & Oluwatobi Fasheyitan, 2021. "The Relevance of Financial Inclusion on Sustainable Economic Growth in Sub-Saharan African Nations," Sustainability, MDPI, vol. 13(10), pages 1-20, May.
    12. Becerra, O. & Cavallo, E. & Scartascini, C., 2012. "The politics of financial development: The role of interest groups and government capabilities," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 626-643.
    13. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    14. Nahed Zghidi & Zouheir Abida, 2014. "Financial Development, Trade Openness and Economic Growth in North African Countries," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(53), pages 91-120, September.
    15. Raja Almarzoqi & Sami Ben Naceur & Akshay Kotak, 2015. "What Matters for Financial Development and Stability?," IMF Working Papers 2015/173, International Monetary Fund.
    16. Imen Mohamed Sghaier, 2023. "Trade openness, financial development and economic growth in North African countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1729-1740, April.
    17. Allen, Franklin & Bartiloro, Laura & Gu, Xian & Kowalewski, Oskar, 2018. "Does economic structure determine financial structure?," Journal of International Economics, Elsevier, vol. 114(C), pages 389-409.
    18. Sèna Kimm Gnangnon, 2019. "Effect of Export Upgrading on Financial Development," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-37, October.
    19. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    20. Dabos, Marcelo & Williams, Tomas, 2009. "A reevaluation of the impact of financial development on economic growth and its sources by regions," MPRA Paper 27297, University Library of Munich, Germany.

    More about this item

    Keywords

    Financial development; Trade openness; Human capital; GMM; Africa;
    All these keywords.

    JEL classification:

    • J19 - Labor and Demographic Economics - - Demographic Economics - - - Other
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:60:y:2018:i:c:p:18-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.