Menu
College of Business & Finance

Journal of Business and Socio-economic Development

About the Journal
Submit your paper

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

License

Published in Journal of Business and Socio-economic Development. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Download PDF

Abstract

Purpose

This paper investigates the impact of institutional factors on financial deepening and its implications on bank credit in Africa.

Design/methodology/approach

The paper employs different panel econometric models to examine the heterogeneity of 50 African countries from 2000 to 2019. The estimators include panel corrected standard errors, system generalized method of moments, quantile and threshold regressions.

Findings

The results show that rule of law, regulatory quality, government effectiveness, voice and accountability, control of corruption and political stability significantly influence financial deepening in Africa. However, government effectiveness has a higher effect on middle- and high-income countries, while other indicators have a high impact on low-income countries. All institutional indicators have stronger effects, almost double, at higher financial depth levels than for countries with lower levels. Government effectiveness and regulatory quality impact financial deepening more for countries with strong institutions than weak ones. Thus, the relationship between institutional qualities and credit provided by banks is non-monotonic.

Practical implications

The findings suggest that strengthening appropriate institutional factors based on country heterogeneity may effectively stimulate debt financing in Africa, the primary source of financing for small and medium-sized enterprises and entrepreneurs.

Originality/value

The novelty of this paper is that previous studies did not sufficiently scrutinize the heterogeneity of the structure of African economies – i.e. differences in institution, credit and income levels.

  • ISSN: 2635-1374
  • e-ISSN: 2635-1692
  • Online date, start – end: 2021
  • Copyright Holder: Ahlia University
  • Open Access: open access
  • Editor: Professor Allam Hamdan

Further Information

COME AND SEE FOR YOURSELF HOW AHLIA CAN SET YOU ON THE PATH TO YOUR GLOBAL FUTURE.​

Apply Now
Get to know Ahlia
Find a programme

HEC ACCREDITED | MET BQA REQUIREMENTS

close-link
Live

19th Graduation Ceremony
Date: 07/12/2024 | Time: 06:30 PM (UTC+03:30)

Watch the Ahlia University 19th Graduation Ceremony live on YouTube by clicking on the button below.
 
close-link
See Event Details