A new reading of the relationship between financial development, trade openness, vulnerability and economic growth in Africa: New perspectives from method of moment’s quantile regression

Monaem Tarchoun, Hela Mili

Article ID: 8765
Vol 8, Issue 12, 2024

VIEWS - 24 (Abstract) 6 (PDF)

Abstract


One of the most frequently debated subjects in international forums is economic growth, which is regarded as a global priority. Consequently, researchers have turned their attention from conventional economic growth at a single average coefficient to divisible economic growth at levels of its value. Although the existing literature has discussed several determinants of economic growth, our article contributes to examining the sources of economic growth in African countries during the generations of reforms from 1990 to 2019 and in the context of economic vulnerability. The variables used in the analysis are gross domestic product, trade openness, financial development, and economic vulnerability. The study uses a quantile regression econometric model to examine these variables at different stages of reform. Quantile regression (QR) estimates for quantiles 0.05 to 0.95 showed mixed results: financial development is favorable to African economic growth at all quantile levels. However, economic vulnerability is a major impediment to economic growth at all quantile levels. In addition, it was found that a high degree of trade openness has a detrimental effect on African economic growth from quantile 0.5 of the dependent variable. Finally, another important result proves that financial development is a remedy for decision-makers against economic vulnerability.


Keywords


economic growth; financial development; vulnerability; quantile regression

Full Text:

PDF


References


Abadie, Alberto, Joshua Angrist, Guido Imbens. (2001). Instrumental Variables Estimation of Quantile Treatment Effects. Econometrica. Forthcoming.

Allen, F., Otchere, I. and Senbet, L.W. (2010). African Financial Systems: A Review, Wharton Financial Institutions. Working Paper no. 10-11, Pennsylvania: Financial Institutions Center.

Baltagi, B. H., Demetriades, P. and Law, S.H. (2007). “Financial Development, Openness and Institutions: Evidence from Panel Data. University of Leicester Discussion Paper No. 07/5.

Beck, T. (2003). “Financial Development and International Trade. Is there a Link?” The Work Bank Group Working Paper, No. 2608.

Beck, T., Levine, R., & Loayza, N. (2000). “Finance and the sources of growth”. Journal of Financial Economics, vol.58, pp 261– 300

Boulila, G & Trabelsi, M (2002) “Financial development and long-run growth: Granger causality in a bivariate VAR structure, evidence from Tunisia: 1962-1997”, Working Paper, Faculte des Sciences Economiques et de Gestion de Tunis

Cariolle J., Goujon M. et Guillaumont P. (2015), “Has structural economic vulnerability decreased in Least Developed Countries? Lessons drawn from retrospective indices.” The Journal of Development Studies.

Chang, C. C., & Mendy, M. (2012). Economic Growth and Openness in Africa: What Is the Empirical Relationship? Applied Economics Letters, 19, 1903-1907.

Christopoulos, D. K., & Tsionas, E. G. (2004). “Financial development and economic growth: Evidence from panel unit root and cointegration tests”. Journal of Development Economics, vol. 73, pp 55–74

Danielsson J., M. Valenzuela and I. Zer (2018), “Learning from history: volatility and financial crises”, The Review of Financial Studies, vol. 31, pp 2774-2805.

De Gregorio, Jose & Guidotti, Pablo E., (1995). “Financial development and economic growth,” World Development, Elsevier, vol. 23(3, pp 433-448

Demetriades, P. and Andrianova, S. (2004), “Finance and Growth: What We Know and What We Need to Know” in C. Goodhart, (ed.) Financial Development and Economic Growth: Explaining the Links, 38-65, Palgrave Macmillan: Basingstoke and New York.

Doan, H. Q. (2019). Trade, Institutional Quality and Income: Empirical Evidence for Sub-Saharan Africa. Economies, 7, https://doi.org/10.3390/economies7020048

Durusu-Ciftci, D., Ispir, M. S., & Yetkiner, H. (2017). “Financial development and economic growth: Some theory and more evidence”. Journal of Policy Modeling, vol. 39(2), pp 290–306

Fahmida, K., & Mazbahul, G. (2012). “Investigating the Determinants of Inflationary Trends in Bangladesh: An ARDL Bound F-test Approach”. MPRA Paper, No. 42822.

FERDI. (2020). A retrospective economic vulnerability indicator (EVI)(French). Available online: https://ferdi.fr/donnees/un-indicateur-de-vulnerabilite-economique-evi-retrospectif (accessed on 2 August 2024).

Godwin, M. (2020). Digitalization and economic growth: A comparative analysis of Sub-Saharan Africa and OECD economies. Telecommunications Policy, Vol 44, Issue 2/

Goodhart, C. (2004). Financial Development and Economic Growth: Explaining the Links. Palgrave Macmillan: Basingstoke and New York.

Guillaumont, P. (2008). Adapting Aid Allocation Criteria to Development Goals. United Nations ECOSOC Development Cooperation Forum, July, and Working Paper FERDI.

Guillaumont, P. (2009). Caught in the Trap. Identifying The Least Developed Countries. Economica.

Guillaumont, P. (2014). Measuring Structural Economic Vulnerability in Africa. ferdi Working Paper 97, April 2014.

King, Robert G., and Ross Levine (1993). “Finance and Growth: Schumpeter Might be Right”. Quarterly Journal of Economics, 108, 717-737.

Königer, J. & Busse, M. (2012). Trade and Economic Growth: A Re-examination of the Empirical Evidence. Hamburg Institute of International Economics (HWWI), research paper 123.

Manwa, F., Wijeweera, A., & Kortt, M. A. (2019). Trade and Growth in SACU Countries: A Panel Data Analysis. Economic Analysis and Policy, 63, 107-118.

McKinnon, R. I. (1973). Money and Capital in Economic Development. Washington D.C.: Brookings Institution.

Mili, H. (2022). Can financial freedom reduce the effect of economic vulnerability on economic growth in Sub-Saharan African countries? vol.7, Issue 2.

Narayan, P. K. (2004). Reformulating Critical Values for the Bounds F-Statistics Approach to Cointegration: An Application to the Tourism Demand Model for Fiji. Department of Economics, Discussion Papers, No.02/04.

Nowbutsing, B. (2014). The Impact of Openness on Economic Growth: Case of Indian Ocean Rim Countries. Journal of Economics and Development Studies, 2(2), 407-427.

Pesaran, Shin, and Smith (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

Pradhan, R. P., Arvin, M. B., Hall, J. H., & Nair, M. (2016). Innovation, financial development and economic growth in Eurozone countries. Applied Economics Letters, 23(16), 1141–1144.

Sakyi, D., Villaverde, J., Maza, A., & Reddy, K. (2012). Trade openness, growth and development: evidence from heterogeneous panel cointegration analysis for middle-income countries. Cuadernos de Economia, 31(57).

Samson, E. (2020). Growing external debt and declining export: The concurrent impediments in economic growth of Sub-Saharan African countries. International Economics, 161, 173-187.

Shaw, E. S. (1973). Financial Deepening in Economic Development. New York: Oxford University Press.

Standley, S. (2010). What are the determinants of financial market development in Sub Saharan Africa? Africa financial markets, 5, 17-19

World Bank Group. (2024). Available online: https://data.worldbank.org/ (accessed on 2 August 2024).

Zahonogo, P. (2016). Trade and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa. Journal of African Trade, 3, 41-56. https://doi.org/10.1016/j.joat.2017.02.001




DOI: https://doi.org/10.24294/jipd.v8i12.8765

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Monaem Tarchoun, Hela Mili

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.