IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v15y2022i10p453-d937347.html
   My bibliography  Save this article

Interplay between Finance and Institutions in the Development Process of the Industrial Sector: Evidence from South Africa

Author

Listed:
  • Adewale Samuel Hassan

    (College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa)

  • Daniel Francois Meyer

    (College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa)

Abstract

Despite the importance of the financial system and quality of institutions to the attainment of economic development goals, the mediating role of institutions in how finance influences the development of the industrial sector across countries has not been given adequate attention in the literature. Therefore, this study assessed the moderating role of institutions in the relationship between finance and industrial development of South Africa for the period 1984–2021. To evaluate the long-run relationship among the variables, the combined cointegration test of Bayer and Hanck was used, while fully modified least squares, dynamic least squares and canonical cointegrating regression were employed to estimate elasticity relationships. The findings of the study revealed that finance impacts industrial development positively in South Africa, but this positive impact is diminished by the quality of institutions in the country. Therefore, the financial system in South Africa needs to be rooted in a high-quality institutional structure for its beneficial impact on the industrial sector to be reinforced for sustainable development. Moreover, there is a need for more reforms in the financial system to promote efficiency that would translate growth in finance into more inclusive growth gains in the industrial sector.

Suggested Citation

  • Adewale Samuel Hassan & Daniel Francois Meyer, 2022. "Interplay between Finance and Institutions in the Development Process of the Industrial Sector: Evidence from South Africa," JRFM, MDPI, vol. 15(10), pages 1-20, October.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:10:p:453-:d:937347
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/15/10/453/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/15/10/453/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Galindo, Arturo & Schiantarelli, Fabio & Weiss, Andrew, 2007. "Does financial liberalization improve the allocation of investment?: Micro-evidence from developing countries," Journal of Development Economics, Elsevier, vol. 83(2), pages 562-587, July.
    2. Chen, Minjia & Guariglia, Alessandra, 2013. "Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1123-1140.
    3. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    4. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 791-819.
    5. Andrew Williams & Abu Siddique, 2008. "The use (and abuse) of governance indicators in economics: a review," Economics of Governance, Springer, vol. 9(2), pages 131-175, May.
    6. 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.
    7. Sami Ben Mim & Abir Hedi & Mohamed Sami Ben Ali, 2022. "Industrialization, FDI and absorptive capacities: evidence from African Countries," Economic Change and Restructuring, Springer, vol. 55(3), pages 1739-1766, August.
    8. Anna Ilyina & Roberto Samaniego, 2011. "Technology and Financial Development," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 899-921, August.
    9. Ashima Goyal, 2012. "The Future Of Financial Liberalization In South Asia," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 19(1), pages 63-96, June.
    10. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    11. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    12. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    13. Abdul Rahman & Muhammad Arshad Khan & Lanouar Charfeddine & David McMillan, 2020. "Financial development–economic growth nexus in Pakistan: new evidence from the Markov switching model," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1716446-171, January.
    14. Houssem Rachdi & Sami Mensi, 2013. "Does institutions quality matter for financial development and economic growth nexus? Another look at the evidence from MENA countries," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 1(1), pages 1-15.
    15. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    16. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
    17. Bai, Chong-En & Du, Yingjuan & Tao, Zhigang & Tong, Sarah Y., 2004. "Local protectionism and regional specialization: evidence from China's industries," Journal of International Economics, Elsevier, vol. 63(2), pages 397-417, July.
    18. Anindya Banerjee & Juan Dolado & Ricardo Mestre, 1998. "Error‐correction Mechanism Tests for Cointegration in a Single‐equation Framework," Journal of Time Series Analysis, Wiley Blackwell, vol. 19(3), pages 267-283, May.
    19. Ilyina, Anna & Samaniego, Roberto, 2012. "Structural change and financing constraints," Journal of Monetary Economics, Elsevier, vol. 59(2), pages 166-179.
    20. Gouthami Kothakapa & Samyukta Bhupatiraju & Rahul A. Sirohi, 2021. "Revisiting the link between financial development and industrialization: evidence from low and middle income countries," Annals of Finance, Springer, vol. 17(2), pages 215-230, June.
    21. Kevin Williams, 2017. "Does democracy dampen the effect of finance on economic growth?," Empirical Economics, Springer, vol. 52(2), pages 635-658, March.
    22. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    23. Jingfei Wu & Mohsen Bahmani-Oskooee & Tsangyao Chang, 2018. "Revisiting purchasing power parity in G6 countries: an application of smooth time-varying cointegration approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(1), pages 187-196, February.
    24. Guglielmo Forges Davanzati & Andrea Pacella, 2014. "Thorstein Veblen on credit and economic crises," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(5), pages 1043-1061.
    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. Clement Olalekan Olaniyi & Sunday Idowu Oladeji, 2021. "Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries," Economic Change and Restructuring, Springer, vol. 54(1), pages 43-74, February.
    2. Zahid Mehmood Akhtar & Dr. Faid Gul & Dr. Fauzia Mubarak, 2024. "Economic Growth and Financial Intermediation Nexus in Pakistan: An ARDL Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 542-551.
    3. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    4. Shahbaz, Muhammad & Hoang, Thi Hong Van & Mahalik, Mantu Kumar & Roubaud, David, 2017. "Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis," Energy Economics, Elsevier, vol. 63(C), pages 199-212.
    5. Liu, Yaping & Sadiq, Farah & Ali, Wajahat & Kumail, Tafazal, 2022. "Does tourism development, energy consumption, trade openness and economic growth matters for ecological footprint: Testing the Environmental Kuznets Curve and pollution haven hypothesis for Pakistan," Energy, Elsevier, vol. 245(C).
    6. Slesman, Ly & Baharumshah, Ahmad Zubaidi & Azman-Saini, W.N.W., 2019. "Political institutions and finance-growth nexus in emerging markets and developing countries: A tale of one threshold," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 80-100.
    7. Chu, Amanda M.Y. & Lv, Zhihui & Wagner, Niklas F. & Wong, Wing-Keung, 2020. "Linear and nonlinear growth determinants: The case of Mongolia and its connection to China," Emerging Markets Review, Elsevier, vol. 43(C).
    8. Husam Rjoub & Jamiu Adetola Odugbesan & Tomiwa Sunday Adebayo & Wing-Keung Wong, 2021. "Investigating the Causal Relationships among Carbon Emissions, Economic Growth, and Life Expectancy in Turkey: Evidence from Time and Frequency Domain Causality Techniques," Sustainability, MDPI, vol. 13(5), pages 1-20, March.
    9. Gouthami Kothakapa & Samyukta Bhupatiraju & Rahul A. Sirohi, 2021. "Revisiting the link between financial development and industrialization: evidence from low and middle income countries," Annals of Finance, Springer, vol. 17(2), pages 215-230, June.
    10. Mehmet Zeki Ak & Mustafa Kirca & Mehmet Nurullah Altintaº, 2016. "The impacts of financial development on growth:A time-varying causality analysis for Turkey," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 34(2), pages 529-554.
    11. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2014. "Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia," Economic Modelling, Elsevier, vol. 43(C), pages 267-278.
    12. Pan, Lei & Mishra, Vinod, 2018. "Stock market development and economic growth: Empirical evidence from China," Economic Modelling, Elsevier, vol. 68(C), pages 661-673.
    13. Nyasha, Sheilla & Gwenhure, Yvonne & Odhiambo, Nicholas M., 2017. "The Dynamic Causal Linkage Between Financial Development And Economic Growth: Empirical Evidence From Ethiopia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(1), pages 73-102.
    14. Manuel Ennes Ferreira & Jelson Serafim & João Dias, 2022. "Finance-Growth Nexus: Evidence from Angola," Working Papers REM 2022/0227, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    15. Yongliang Zhang & Md. Qamruzzaman & Salma Karim & Ishrat Jahan, 2021. "Nexus between Economic Policy Uncertainty and Renewable Energy Consumption in BRIC Nations: The Mediating Role of Foreign Direct Investment and Financial Development," Energies, MDPI, vol. 14(15), pages 1-29, August.
    16. Onur ÖZDEMİR, 2020. "Revisiting the Finance-Growth Nexus in Turkey: Bayer-Hanck Combined Cointegration Approach over the 1970-2016 Period," Sosyoekonomi Journal, Sosyoekonomi Society, issue 28(44).
    17. Edward E GHARTEY, 2015. "Causal Relationship Between Financial Development And Economic Growth In South Africa," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 125-142.
    18. Eléazar Zerbo, 2017. "Energy consumption and economic growth in Sub-Saharan African countries: Further evidence," Economics Bulletin, AccessEcon, vol. 37(3), pages 1720-1744.
    19. Ahmed Kchikeche & Ouafaà Khallouk, 2021. "On the nexus between economic growth and bank-based financial development: evidence from Morocco," Middle East Development Journal, Taylor & Francis Journals, vol. 13(2), pages 245-264, July.
    20. Rousseau, Peter L. & D’Onofrio, Alexandra, 2013. "Monetization, Financial Development, and Growth: Time Series Evidence from 22 Countries in Sub-Saharan Africa," World Development, Elsevier, vol. 51(C), pages 132-153.

    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:gam:jjrfmx:v:15:y:2022:i:10:p:453-:d:937347. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.