Financial liberalisation and economic growth in SADC countries

Attaining high levels of economic growth and development has been one the goals of the Southern African Development Community (SADC). This paper investigates the relationship between financial liberalisation and economic growth in SADC countries. Annual data for the 15 SADC countries for the period 1985-2011 was used to develop a fixed effect model, generalised method of moments (GMM) as well as the fully-modified OLS (FMOLS) cointegration test. The results revealed that there is a positive relationship between financial liberalisation and economic growth in SADC but there is no long-run relationship between the two variables. It is recommended that the SADC adopt measures to increase the level of financial openness in the region in order to increase economic growth but this policy should be supplemented by other growth enhancing policies in order to increase economic growth over the long-term. However, prior to the increase in the level of financial openness, well-defined property rights and a sound regulatory framework should be in place to monitor the financial liberalisation process in order to avoid financial crises

Interest rate liberalisation and economic growth in SADC countries

The pioneers of financial liberalisation, McKinnon (1973) and Shaw (1973) argue that inter-est rates determined by market forces have a positive effect on economic growth rates. Inter-est rates that are kept at low levels through the intervention of a central bank discourage sav-ings and capital accumulation, and distort the allocation of resources. Interest rate liberalisa-tion results in higher real interest rates which could have a positive effect on savings, invest-ments and economic growth (Ang & McKibbin 2007). Interest rate liberalisation also reduces capital flight and encourages capital inflows by increasing return for investors which supple-ments domestic investments. Shaw (1973) argued that interest rate liberalisation promotes financial development by encouraging savings and increasing the availability of funds for lending purposes. The study provides an empirical analysis of the channels through which interest rate liberalisation impacts on economic growth in SADC countries for the period 1990 to 2015. The study is motivated by the concerns on the impact of interest rate liberalisation on eco-nomic growth in the period after the 2008-’09 global financial crisis as well as concerns that interest rate liberalisation increases the likelihood of financial crises. Higher interest rates resulting from interest rate liberalisation may increase the likelihood of financial crises by encouraging risk-taking on the part of banks in an attempt to take advantage of higher returns. Authorities in most countries have reduced interest rates in an attempt to boost aggregate demand, which is expected to speed up the recovery from the crisis. However, the lowering of interest rates may result in a decrease in savings and investments, which are the main drivers of long-term economic growth. Real interest rates below equilibrium may encourage banks to take more risks in their lending practices in order to earn higher returns which may result in an increase in non-performing loans. The influence of interest rates on financial crises has thus received considerable attention since the onset of the 2008-’09 global financial crisis and this thesis contributes to the literature by determining how interest rates impact on economic growth in SADC countries and whether interest rate liberalisation increases the likelihood of financial crises. The study examines the relationship between interest rate liberalisation and economic growth through different channels. These include savings and investments, capital flows and finan-cial development. The study uses the Pooled Mean Group (PMG) estimator proposed by Pesaran et al (1999) to estimate the effect of interest rate liberalisation on economic growth through the abovementioned channels. The study also examines whether interest rate liberalisation increases the likelihood of financial crises. This is estimated using the logit model, due to the binary nature of the dependent variable. The results provide limited support for the McKinnon and Shaw hypothesis. Interest rate liberalisation has a positive effect on economic growth through higher savings and investments. Interest rate liberalisation has a positive outcome on capital inflows, which indicates that the prospect of earning higher returns encourages foreign investors to invest in the domestic economy. However, capital inflows do not enhance economic growth. This could be due to the low levels of human capital in SADC countries. Interest rate liberalisation boosts financial development through higher savings and invest-ments. However, financial development has a negative effect on economic growth because of the link between financial development and financial crises. The results show that interest rate liberalisation decreases the likelihood of financial crises directly, however, it increases the probability of financial crises indirectly through financial development. This suggests that the major cause of financial crises in the region is the low levels of institutional quality and lack of adequate supervisory frameworks to monitor the functioning of the financial system. Therefore, the results imply that the negative impact of interest rate liberalisation may outweigh the positive effect of higher savings and investments in SADC countries. A number of policy recommendations can be drawn from the study. Liberalisation of interest rates has a positive effect on economic growth through savings and investments. However improving the levels of institutional quality is vital for preventing financial crises. Interest rate liberalisation may not have a direct influence on financial crises, but higher levels of fi-nancial development emanating from higher interest rates increase the likelihood of financial crises. Therefore, a sound monitoring framework is necessary for the benefits of financial liberalisation to be realised. Also, investment in education, training and research and development is a necessity so as to increase levels of human capital, which in turn may allow the region to reap the benefits of capital inflows

Interest Rate Reforms and Economic Growth in SADC Countries: The Savings and Investment Channel

The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. The results show that interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth.JEL Codes - C50; E20; E6

Trade openness and economic growth in SADC countries

In spite of the wave of liberalisation studied during the past decades, the debate still remains open on the issue of the trade openness and economic growth nexus. The paper reviews the relationship between trade openness and economic growth for 11 SADC countries for the period between 1990 and 2016. Investments, labour and inflation are incorporated in the model to form a multivariate framework. The study employed the ARDL-bounds test approach and the Pooled Mean Group (PMG) model to estimate the long run relationship among the variables. The evidence suggests that co-integration is detected at the 1% level in all countries with the exception of Malawi, Mauritius, Swaziland and Tanzania. Co-integration is only detected at the 10% level in Tanzania while Malawi, Mauritius and Swaziland the null of no co-integration is not rejected. Furthermore, the results revealed trade openness has a negative impact on economic growth in the long-run

Trade openness and economic growth in SADC countries

In spite of the wave of liberalisation studied during the past decades, the debate still remains open on the issue of the trade openness and economic growth nexus. The paper reviews the relationship between trade openness and economic growth for 11 SADC countries for the period between 1990 and 2016. Investments, labour and inflation are incorporated in the model to form a multivariate framework. The study employed the ARDL-bounds test approach and the Pooled Mean Group (PMG) model to estimate the long run relationship among the variables. The evidence suggests that co-integration is detected at the 1% level in all countries with the exception of Malawi, Mauritius, Swaziland and Tanzania. Co-integration is only detected at the 10% level in Tanzania while Malawi, Mauritius and Swaziland the null of no co-integration is not rejected. Furthermore, the results revealed trade openness has a negative impact on economic growth in the long-run

Interest rate reforms and economic growth: the savings and investment channel

The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. Furthermore, the ARDL bounds tests are conducted for the individual countries to test for cointegration. The results show that cointegration is detected in most countries for each one of the three specifications. Also, interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth

Interest rate reforms and economic growth: the savings and investment channel

The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. Furthermore, the ARDL bounds tests are conducted for the individual countries to test for cointegration. The results show that cointegration is detected in most countries for each one of the three specifications. Also, interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth

The relationship between trade openness and economic growth: The case of Ghana and Nigeria.

This study purposed to determine the long run relationship between trade openness and economic growth in Ghana and Nigeria covering the period between 1980 and 2016. It incorporated investment, exchange rates and inflation as the additional variables. To test for stationarity of the data, the augments Dickey-Fuller (ADF) (Dickey and Fuller, 1981), the Phillips and Perron (1988) and the DF-GLS test proposed by Elliot, Rothenberg and Stock (1996) were used. The Autoregressive distributed lag (ARDL) model was employed in this study to examine the long run relationship between the variables. The findings of the study suggested existence of a long run relationship among the variables for both countries. The results further showed that trade openness has a positive impact on economic growth and significant at the 1% level in Ghana while in Nigeria trade openness has a negative but insignificant effect on economic growth. These results imply that different policy measures should be put into place for each of these two countries

The Impact of Covid-19 on Oil Market Returns: Has Market Efficiency Being Violated?

This study examines the effect of COVID-19 pandemic on the efficiency of oil markets from 2nd February 2020 to 4th August 2021. By relying on dynamic conditional correlation GARCH and Wavelet coherence techniques, we able to provide correlations between the variables across time and frequency domains. Our empirical findings point to significant yet weak correlations between COVID-19 recovery/death rates for the time period extending from early February to early May even though we observe strong correlations between WTI prices and COVID-19 health statistics in mid-April. Moreover, during this identified time period, the length of frequency cycles within the correlations decreases from 16 days to 8 days. Altogether, these findings imply that oil markets were inefficient between February and early May and have since turned market efficient for the remaining duration of the pandemic.

Financial development and economic growth in Brazil: A Non-linear ARDL approach

Financial intermediation through the banking system plays an important role in economic development through the allocation of savings, thus improving productivity, and ultimately increasing the rate of economic growth. This paper examines the interrelationships between financial development and economic growth using the Nonlinear Autoregressive Distributed Lag (NARDL) model for Brazil. The time component of the study’s database is 1985 – 2015 inclusive. The study focused on the banking sector and stock market indicators of financial developments. The empirical results suggest that the banking sector measures of financial development have a negative relationship with economic growth while the financial development indicators representing stock market development are positively related to economic growth. The study also established an evidence of a long run and short run asymmetric relationship between financial development and growth. The empirical results open new insights for policy makers for long run and sustainable economic development