The 2011 Japanese earthquake, tsunami and nuclear crisis: evidence of contagion from international financial markets

Natural disasters may inflict significant damage upon international financial markets. Using 33 international stock indexes and exchange rates, this paper examines if any contagion occurred across financial markets after the March 11, 2011 Japanese earthquake, tsunami and nuclear crisis. Using heteroscedasticity biases based on correlation coefficients, findings reveal that: while no sampled foreign exchange market suffered from contagion, stock markets of Taiwan, Bahrain, Saudi Arabia and South Africa witnessed a contagion effect. Our results have two paramount implications. Firstly, we have confirmed existing consensus that in the face of natural crises that could take an international scale, emerging markets are contagiously affected for the most part. Secondly, we have also shown that international financial market transmissions not only occur during financial crisis; natural disaster effects should not be undermined.

Stock Market Development in Africa: do all macroeconomic financial intermediary determinants matter?

This study brings light to some financial intermediary development factors that could negate stock market development, as well as those that could improve it. Using a panel of eight countries, from 1989 to 2008, we derive indexes via Principal Component Analysis; based on which panel fixed effect regressions are performed. The principal edge of this work is that, in policy making, not all aspects of financial intermediary development should be prioritized for stock market development.Financial intermediary development, Stock market development, Africa

Law, economic growth and human development

This paper cuts adrift the mainstream approach to the legal-origins debate on the law-growth nexus by integrating both overall economic and human components in our understanding of how regulation quality and the rule of law lie at the heart of economic and inequality adjusted human developments. Findings summarily reveal that legal-origin does not explain economic growth and human development beyond the mechanisms of law channels. As a policy implication results support benefits of the rule of law and quality of regulation as channels to economic growth and human development.Law; economic growth; human development; developing countries

Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis

A spectre is hunting embryonic African monetary zones: the EMU crisis. The introduction of common currencies in West and East Africa is facing stiff challenges in the timing of monetary convergence, the imperative of bankers to apply common modeling and forecasting methods of monetary policy transmission, as well as the requirements of common structural and institutional characteristics among candidate states. Inspired by the premise of the EMU crisis, this paper assesses real and monetary policy convergence within the proposed WAM and EAM zones. In the analysis, monetary policy targets inflation and financial dynamics of depth, efficiency, activity and size while real sector policy targets economic performance in terms of GDP growth at macro and micro levels. Findings suggest overwhelming lack of convergence; an indication that candidate countries still have to work towards harmonizing cross-country differences in fundamental, structural and institutional characteristics that hamper the convergence process.Currency Area; Convergence; Policy Coordination; Africa

Reversed Economics and Inhumanity of Development Assistance in Africa

Purpose – The purpose of this paper is to assess the aid-development nexus in 52 African countries using updated data(1996-2010) and a new indicator of human development(adjusted for inequality). Design/methodology/approach – The estimation technique used is a Two-Stage-Least Squares Instrumental Variable approach. Instruments include: income-levels, legal-origins and religious-dominations. The first-step consists of justifying the choice of the estimation technique with a Hausman-test for endogeneity. In the second-step, we verify that the instrumental variables are exogenous to the endogenous components of explaining variables(aid dynamic channels) conditional on other covariates(control variables). In the third-step, the strength and validity of the instruments are examined with the Cragg-Donald and Sargan overidentifying restrictions tests respectively. Robustness checks are ensured by: (1) the use of alternative aid indicators; (2) estimation under restricted and unrestricted hypotheses ; and (3) adoption of two interchangeable sets of instruments. Findings – The findings broadly indicate that development assistance is detrimental to GDP growth, GDP per capita growth and inequality adjusted human development. Given concerns on the achievement of the MDGs, the relevance of these results point to the deficiency of foreign aid as a sustainable cure to poverty in Africa. Social implications – It is a momentous epoque to solve the second tragedy of foreign aid; it is high time economists and policy makers start rethinking the models and theories on which foreign aid is based. In the meantime, it is up to people who care about the poor to hold aid agencies accountable for piecemeal results. Originality/value – These findings are based on data collected after pioneering works on the aid-development nexus. Usage of the inequality adjusted human development index first published in 2010, corrects past works of the bunch of criticisms inherent in the first index.Foreign Aid; Political Economy; Development; Africa

Financial development, trade openness and financial openness: do income levels matter for developing countries?

Using a panel of 29 African middle and low income countries with data spanning from 1988 to 2007, we analyze linkages between openness and financial intermediary development when income levels matter. Main findings are four: firstly, openness in the last two decades has not been the effect of growth and welfare, but of structural adjustment policies imposed by the IMF and World Bank; secondly, but for the positive impact of trade openness on the financial depth of low income countries, openness in sampled countries fail to bring about financial intermediary development; thirdly, financial openness brings trade openness for both income levels, but the reverse is true only for middle income countries; lastly, low income countries will benefit more from trade openness through financial deepening and financial openness than their middle income counterparts.Openness, financial intermediary development, income levels, panel, Africa.

Linkages between Financial Development and Openness: panel evidence from developing countries.

In this paper, we contribute to existing literature on financial development and openness by, sampling twenty-nine African countries with data spanning from 1987 to 2008. Using panel empirical techniques, we provide evidence of bi-directional causality between trade openness and financial openness; albeit, the former, bearing much more impact on the later. Neither capital openness nor trade openness, significantly account for financial development. Our results are robust to variable interaction via Principal Component Analysis. For sampled countries, policy towards trade openness should be effective in view of inviting private capital flows.Trade Openness, Financial Openness, Financial Development, Panel, Africa

On the effect of foreign aid on corruption

The Okada & Samreth(2012, EL) finding that aid deters corruption could have an important influence on policy and academic debates. This paper partially negates their criticism of the mainstream approach to the aid-development nexus. Using updated data(1996-2010) from 52 African countries we provide robust evidence of a positive aid-corruption nexus. Development assistance fuels(mitigates) corruption(the control of corruption) in the African continent. As a policy implication, the Okada & Samreth(2012, EL) finding for developing countries may not be relevant for Africa.Foreign Aid; Political Economy; Development; Africa

Law, finance, economic growth and welfare: why does legal origin matter?

This paper proposes and empirically validates four theories of why legal origin influences growth and welfare through finance. It is a natural extension of “Law and finance: why does legal origin matter?” by Thorsten Beck, Asli Demirgüç-Kunt and Ross Levine (2003). We find only partial support for the Mundell(1972), La Porta et al. (1998) and Beck et al.(2003) hypotheses that English common-law countries tend to have better developed financial intermediaries than French civil-law countries. While countries with English legal tradition have legal systems that improve financial depth, activity and size, countries with French legal origin overwhelmingly dominate in financial intermediary allocation efficiency. Countries with Portuguese legal origin fall in-between.Law; Financial development; Growth; Welfare

Political Crises and Risk of Financial Contagion in Developing Countries: Evidence from Africa

The recent waves of political crises in Africa and the Middle East have inspired the debate over how political instability could pose a risk of financial contagion to emerging countries. With retrospect to the Kenyan political crisis, our findings suggest stock markets in Lebanon, Mauritius and Nigeria were contaminated.Political crisis; Contagion; Developing countries; Equity Markets