Examining the Roles of Institutional Quality and Financial Openness in Enhancing Economic Performance: Evidence from BRICS Countries

Purpose: The aim is to examine the roles of institutional quality and financial openness on the economic performance of BRICS, using annual series that covered the period from 1996 to 2020. Methods: Principal component analysis (PCA) was used to select the institutional quality variables, while analysis of the study was conducted under the panel data random effect model. Findings indicate that FDI inflows and capital account openness positively impacted on GDP per capita significantly; however the impact of FDI outflows on GDP per capita, though positive, was not significant. Moreover, control of corruption and government effectiveness both had positive and significant impact on GDP per capita, while trade openness impacted GDP per capita negatively, though the result was not significant. Findings: The outcome of the study reveals that the economy of the BRICS improved by removing restrictions on capital controls which retard capital inflows, but liberalization of trade had adverse effect on growth in the bloc. Equally revealed in the study is that effective government which reduces corrupt tendencies lead to improved economic performance. The study therefore recommends the removal of all bottlenecks that hinder FDI inflows and the building of strong institutions in BRICS. Practical Implications: With respect to the institutional variables employed in the study, findings revealed that when governance is effective, it encourages improvement in the economy. Effectiveness in governance encourages reduction in corruption which is the bane of underdevelopment in many developing countries. Originality/Value: The panel random effect results showed that of the three financial openness indicators employed,  FDI inflows and capital account openness significantly impacted on GDP per capita positively, while the impact of FDI outflows was positive but negligible

South Africa’s interest rate behaviour: Investigating the influence of the indicators of financial openness

This study seeks to investigate the influence of financial openness variables on South Africa’s interest rate during the period between1980-2020. The study used both Augmented Dickey-Fuller (ADF) and Philip-Perron (PP) tests to determine the order of integration of the variables, while the autoregressive distributed lag (ARDL) bounds test was used to investigate both the short and long-run impact of the independent variables on the dependent variable. The findings of the study revealed that in the short-run both foreign direct investment (FDI) inflows and FDI outflows impacted the interest rate positively. However, portfolio investment, exchange rate and capital account openness did not have any significant impact on interest rate within the duration of this research. The long-run results revealed that FDI inflows had a positive and significant impact on interest rate. Also, while capital account openness had a significant and positive impact on the interest rate, FDI outflows, portfolio investment, and the exchange rate had no significant impact on interest rate. The study concludes that apart from portfolio investment which did not exert significant impact on interest rate, other financial openness indicators used in the study had a significant impact on South Africa’s domestic interest rate. The paper argues that, appropriate monetary policy measures targeted to lessen the monetary impact of excess capital inflows should be considered.  Additionally, capital account liberalization policy should be encouraged, but it needs to be regulated if it places an excessive amount of liquidity pressure on the economy

Does Terms of Trade Matter for Economic Growth? A Focus on Natural Resource-Rich Sub-Saharan African Countries

The contention that deteriorating terms of trade exists in countries that rely heavily on the exploitation and export of natural resources motivated us in this study. We therefore sought to investigate the impact of terms of trade on economic growth in natural resource-rich sub-Saharan African countries. We carried out the study using annual series that span a period of 1990-2019 under the framework of panel Random and Fixed effects. Our findings indicate that a long run relationship exists between GDP and the explanatory variables used in the study. Results also show that, while cross-section random effects indicates that terms of trade positively impacts on GDP, period fixed effects shows that terms of trade negatively impacts on GDP even though it is not significant. Results of our study also show that in all the models, labour force total and FDI have positive impact on GDP, while trade openness impacts on GDP negatively. We therefore recommend that the SSA natural resource-rich countries should diversify their economies away from the traditional natural resources base. Also human capital should be improved through sound education and training, while all the bottlenecks that constrain the inflow of foreign direct investment should be dismantled

Shocks to Monetary Policy Instruments: Does Credit to the Private Sector Respond in a Similar Manner to Public Sector Credit in Nigeria? A Vector Autoregressive Approach

This paper aims to investigate the response of private and public sector credit to shocks in monetary policy instruments with a view to ascertaining if the responses differ. The study utilized the vector autoregressive (VAR) model with monthly data covering the period from 2010M1 to 2021M8. Findings show that credit to private sector responds positively to shocks in money supply and monetary policy rate (MPR) in all periods. However, the response to cash reserve requirement (CRR) was negative beginning from period five, and it also responded negatively to foreign interest rate shock. On the other hand, credit to government was found to respond positively to shocks in money supply up to period two and CRR in all the periods, but it responded negatively to MPR starting from period three. The results of the variance decomposition show that other than shocks to itself, which was 100% in the first period, shocks to other variables influence private sector credit. Also, other than shocks to itself, which was 99.89% in the first period, shocks to other variables lead to shocks to credit to government. We therefore recommend that policies used to influence financial intermediation should factor in the sensitivity of both public and private sectors to these policy instruments and the impact of exogenous shocks should be factored into policy formulation

Investigating the Dynamic Link between External Reserves and Monetary Variables in Nigeria

Nigeria is a country whose revenue base is woven around the oil sector. Consequently, any shock to the international price of oil definitely affects the reserve position of the country. Our major motivation for this study is therefore anchored on the volatile nature of the country’s reserves and how domestic monetary variables respond to shocks in the external reserves as well as possible reverse responses of external reserves to changes in monetary variables. Using monthly series over a period of 2007-2019 and under the framework of the VAR, our findings revealed a dynamic relationship that exists between external reserves and monetary variables in Nigeria. That is, as monetary variables responded to shocks in external reserves, a reverse response was also noticed running from external reserves to changes in monetary variables. The impact of oil to the economy was exhibited in the result as external reserves responded positively to oil price shocks; thus showing the importance of the oil sector to the country’s reserve position. We therefore recommend that a synergy should exist between monetary and fiscal authorities in order to neutralize the destabilizing effect of unsustainable increase in reserve inflows and to diversify the economy away from the oil sector to reduce volatility in reserves inflows

Does Sterilization Policy Exert an Upward Pressure on Interest Rate as Dictated by Theory? A Nigerian Example

The implications of capital inflows on the economy and the fall out of the policy geared towards addressing these phenomena, especially the impact of the policy on interest rate motivated us in this study. Under the framework of ARDL and using monthly series over a period of 2010M1-2021M3, our findings showed that in the short-run, sterilization policy leads to rising interest rate in the current period. However, after a lag, sterilization policy depresses interest rate. We equally found that in the long-run, sterilization policy pushes interest rate up. In another direction, we observed a negative relationship between money supply and interest rate both in the short-run and in the long-run and the exogenous variables in the model influence interest rate significantly. We therefore recommend that different measures should be adopted to cushion the effect of unsustainable capital inflows to avoid repeated need for further sterilization and the increasing cost of sterilization in the long-run. It is also our advice that exogenous variables should be factored in when fashioning out a desirable interest rate in line with economic reality

INVESTIGATING THE EFFECTIVENESS OF STERILIZATION POLICY IN CONTROLLING MONEY SUPPLY AND CAPITAL INFLOWS IN NIGERIA

Over the last decade, Nigeria has witnessed rising capital inflows that have kept the monetary authorities on their toes. This study, therefore, investigated the effectiveness of sterilization policy in controlling money supply and capital inflows in Nigeria. The need for this investigation arose from observed dearth of study in this area in Nigeria as well as the surge in capital inflows within the study period with its likely macroeconomic implications. The study would answer the question: (1) to what extent does sterilization effort of the Central Bank of Nigeria effective in controlling capital inflows in Nigeria, (2) to what extent is sterilization policy able to regulate money supply in Nigeria. By utilizing monthly data spanning a period of 2010-2018 under the framework of Two Stage Least Squares (2SLS), findings show that the sterilization policy of the CBN is effective in regulating money supply and depressing capital inflows both in period of normal capital inflows and in period of intensive capital inflows. We therefore recommend that in periods of sudden and volatile capital inflows, sterilization measure should be given a priority in order to stave off the negative consequences of such unexpected inflows. We also recommend fiscal prudency on the part of the fiscal authorities, especially within the period of high and volatile capital inflows just as the observance of a synergy between fiscal and monetary policies is not ruled out

Does Domestic Food Production Contribute to Improved Life Expectancy? Evidence from Low-Income Food-Deficit Countries (LIFDCS In Africa

This paper examined the role food production could play in enhancing longevity in Africa’s low income and food poverty countries. The paper used two cointegrating panel models, namely: dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) in addition to panel OLS and the sample covers the period from 2000-2020. Findings of the study reveal that in all the three panel models used, food production index impacted positively and significantly on life expectancy in the selected countries. Also, while GDP per capita did not positively influence life expectancy; government expenditure on health improved it. The positive impact of nutritional food on life expectancy is thus established. The study is therefore of the view that the government in these countries should enunciate appropriate policies to enhance food security while stepping-up health intervention measures. In addition, there is need for institutional upgrade to ensure that wealth is distributed evenly in these countries

Regulatory Quality, Rule of Law and Foreign Direct Investment Inflows: Evidence from the Economic Community of West African States

In literature, the role of institutions in stimulating FDI inflows has been documented. This study examined the contributions of two institutional-quality variables, regulatory quality and the rule of law, in attracting FDI in the Economic Community of West African States (ECOWAS). The study used an annual series covering the period from 2000 to 2020 using three different estimation techniques: the panel ARDL, the panel FMOLS, and the panel DOLS. Findings reveal that while the rule of law had a negative and significant impact on FDI inflows under the panel ARDL and FMOLS, the impact of regulatory quality was negative and significant under the panel ARDL and DOLS. The short-run ARDL results revealed that only the population growth rate positively and significantly impacted FDI inflows. However, in the long run, findings showed that while the population growth rate had a positive and significant impact on FDI inflows under the ARDL, the impact of GDP was positive and significant in all the models. The exchange rate was also found to negatively and significantly impact FDI inflows in all the models. The study consequently recommends building strong institutions through collaboration among the member countries while improving human capital and economic growth

Regulatory Quality, Rule of Law and Foreign Direct Investment Inflows: Evidence from the Economic Community of West African States

In literature, the role of institutions in stimulating FDI inflows has been documented. This study examined the contributions of two institutional-quality variables, regulatory quality and the rule of law, in attracting FDI in the Economic Community of West African States (ECOWAS). The study used an annual series covering the period from 2000 to 2020 using three different estimation techniques: the panel ARDL, the panel FMOLS, and the panel DOLS. Findings reveal that while the rule of law had a negative and significant impact on FDI inflows under the panel ARDL and FMOLS, the impact of regulatory quality was negative and significant under the panel ARDL and DOLS. The short-run ARDL results revealed that only the population growth rate positively and significantly impacted FDI inflows. However, in the long run, findings showed that while the population growth rate had a positive and significant impact on FDI inflows under the ARDL, the impact of GDP was positive and significant in all the models. The exchange rate was also found to negatively and significantly impact FDI inflows in all the models. The study consequently recommends building strong institutions through collaboration among the member countries while improving human capital and economic growth