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Public sector efficiency: the role of financial sector development

Author

Listed:
  • Aguima Aime Bernard Lompo

    (CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)

Abstract

The purpose of this paper is to assess the extent to which financial sector development can increase public sector efficiency. We take advantage of new global public sector efficiency scores for developing and developed countries to address this issue. Public efficiency scores are computed via Stochastic Frontier Analysis (SFA). Then, we rely notably on panel methodology to estimate the effect of financial development on changes in efficiency scores. For a sample of 158 developing and developed countries over the period 1990–2017, we find that a high level of financial development contributes to high public expenditure efficiency. Robustness checks confirm these results and rule out potential biases from omitted variables, simultaneity, or reverse causality. The article explores the channels through which financial development influences expenditure efficiency, emphasizing the role of fiscal performance, per capita income, and institutional quality, particularly corruption control. The analysis also examines heterogeneity in the effectiveness of financial development based on various factors, such as types of financial development variables, macroeconomic conditions, and institutional factors.

Suggested Citation

  • Aguima Aime Bernard Lompo, 2024. "Public sector efficiency: the role of financial sector development," Working Papers hal-04731269, HAL.
    • Handle: RePEc:hal:wpaper:hal-04731269
    as

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