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Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries

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  • Clement Olalekan Olaniyi

    (Obafemi Awolowo University)

  • Sunday Idowu Oladeji

    (Obafemi Awolowo University)

Abstract

This study examines the moderating effect of institutional quality on the finance–growth nexus in the West African region via dynamic panel generalized method of moments. The findings reveal that the linear financial development has a separate positive influence on growth, while the interaction between financial development and institutional quality has a negative effect on growth. It implies that institutional quality constitutes a drag that diminishes and leaks out the growth benefits of financial development in West Africa. The threshold level of institutional quality beyond which financial development accelerates economic growth in the region is found to be 4.77 on the ordinal scale of 10 points. It is, however, evident that most of the countries in West Africa operate below the threshold. Hence, it is concluded that the institutional framework weakens the impact of finance on growth in the subregion of sub-Saharan Africa.

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  • 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.
    • Handle: RePEc:kap:ecopln:v:54:y:2021:i:1:d:10.1007_s10644-020-09275-8
    DOI: 10.1007/s10644-020-09275-8
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    More about this item

    Keywords

    Financial development; Institutional quality; Economic growth; GMM; Threshold; West Africa;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania

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