Financial development dynamic thresholds of financial globalization: evidence from Africa
Simplice Asongu
No 12/020, Working Papers of the African Governance and Development Institute. from African Governance and Development Institute.
Abstract:
Purpose – The issue of which financial initial conditions are necessary to materialize the benefits of financial globalization remains open to debate in the literature. In this paper, we try to put some empirical structure on the concept of financial threshold conditions in order to give policymakers guidance on the Kose et al. (2011) and Henry (2007) hypothesis. Its object is to assess if financial benefits of financial globalization are questionable until greater domestic financial development has taken place in African countries. Design/methodology/approach – In framing the financial dimension in a more concrete and tractable manner, we examine the concerns of how domestic financial initial dynamics of depth (economic and financial systems), efficiency (banking and financial systems), activity (banking and financial systems) and size, play out in the financial development benefits of financial globalization. The estimation approach consists of assessing the impact of financial globalization through-out the conditional distributions of domestic financial development dynamics. Findings – The introduction of previously missing financial dimensions into the debate generates a number of important findings. Only financial initial (threshold) conditions of size are necessary to materialize the benefits of financial globalization. While financial depth only partially validates the hypothesis, dynamics of efficiency and activity (credit) do not confirm the hypothesis. Practical implications – Addressing the issue of surplus liquidity in African financial institutions could improve the benefits of financial size and potentially reverse the trends of financial efficiency and activity. Depending on the context of sampled countries, the appropriate role of policy has always been either to stem the tide of capital flows or encourage them. Policymakers who have been viewing their challenges exclusively from the latter perspective for benefits in growth (finance) might be getting the financial dynamics badly wrong. Originality/value – Blanket financial development policies may not reap the financial benefits of financial globalization until domestic financial dynamics of depth, efficiency, activity and size are critically considered. The introduction of the last three previously missing components in the literature sheds more light on the globalization-development nexus.
Keywords: Banking; International investment; Financial integration; Development (search for similar items in EconPapers)
JEL-codes: F02 F21 F30 F40 O10 (search for similar items in EconPapers)
Pages: 36
Date: 2012-06-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)
Forthcoming in the Journal of Economic Studies
Downloads: (external link)
http://www.afridev.org/RePEc/agd/agd-wpaper/Financ ... frican-countries.pdf Revised version, 2013 (application/pdf)
Related works:
Working Paper: Financial development dynamic thresholds of financial globalization: evidence from Africa (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:agd:wpaper:12/020
Access Statistics for this paper
More papers in Working Papers of the African Governance and Development Institute. from African Governance and Development Institute. Contact information at EDIRC.
Bibliographic data for series maintained by Asongu Simplice ().