Financial institutions, markets and structure linkages with economic performance in selected African countries: Time series evidence
Thesis (PhD)--Stellenbosch University, 2018.
ENGLISH SUMMARY: As traditional sources of financing such as bank lending have slowed down, the call to mobilise financial resources for the attainment of the SDGs and the Africa Agenda 2063 has grown louder. Consequently, the need for more research to identify and understand untapped and underused sources of economic growth has become even more urgent. Unfortunately, although research on the finance-growth linkage is substantial, there seems to be no agreement on the channels and magnitude through which different institutions influence economic growth. For that reason, and to contribute to the finance-growth discourse, 264 trivariate models were estimated for each country (792 in total) in this thesis, to identify the channels and magnitude through which financial systems influence economic growth. The estimation is based on the cointegration and vector-error correction techniques within the Johansen cointegration framework. Estimating trivariate models enabled us to apply one of the 22 control variables at a time, thus testing the robustness of the relationship under different conditions. To cover different aspects of financial systems, 8 different measures of financial development were used. Also, the study was carried out at country level to avoid problems associated with cross-country studies. The study uses time series data from Africa’s three biggest economies, namely: Egypt, Nigeria and South Africa1 over the period 1971-2013. The thesis is organised into five empirical chapters. Firstly, results from our analysis show that the link between bank development and economic growth in all the three countries is weak and mixed. Egypt is the only country to report overall results, though weak, which show a positive relationship between bank development and economic growth. The results for Nigeria and South Africa are not only weak, but mixed. Secondly, analysis in respect of the relationship between stock market development and economic growth shows that such a relationship is positive in all three countries, albeit based on different measures. In Egypt, our results show that stock market development positively influences economic growth based on both stock market capitalisation and stock market value-traded measures. Results obtained in respect of Nigeria show that stock market value-traded is likely to positively influence economic growth. The results for South Africa are surprisingly weak, given that this is the country with the deepest stock market in Africa. Thirdly, results from this thesis show that there is potential for NBFIs to stimulate economic growth in Egypt and South Africa. In Nigeria, no evidence was found to show the influence of NBFIs on economic growth. Rather, the weak evidence that was found in respect of Nigeria suggests that economic growth will negatively influence the development of NBFIs. Fourthly, results in respect of financial structure show that in Egypt, the liquidity of the financial system is influenced by the growth of the economy. In Nigeria, results show that the liquidity of financial markets positively influences economic growth. The results for South Africa show a positive relationship, suggesting that an increase in the liquidity of the financial markets will spur greater economic growth. Lastly, results obtained from this thesis suggest that causality runs from stock markets and banks to NBFIs in Egypt and Nigeria, where the level of NBFI development is low. However, in South Africa, where the NBFIs are fully developed, NBFIs influence the development of stock markets and banks. Thus, these results highlight the different channels through which financial development influences economic growth in the three countries. Note 1. These three countries are the three biggest economies in Africa
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