How Can Economic and Political Liberalisation Improve Financial Development in African Countries?

The objective of this paper is to study the interactions between economic liberalisation, political liberalisation and financial development in African countries. More specifically, we seek to establish the impact of economic, political and institutional openness on financial deepening. The empirical approach will be two-step procedure, first using a difference in difference method to show the various aspect of financial liberalisation on economic and political freedom while the second step will be using panel data techniques from period 1990 to 2005. The estimation results can be summarised as the following, first, Economic and financial liberalisation did account significantly for the financial development performance. While political stability show a positive overall effect on financial development, the association with Political freedom is consistent only after controlling the endogeneity of Political freedom on financial development. This result indicates that the transformation of the political and economic environment has improved the performance of the financial sector.Political Liberalisation, Economic Liberalisation, Financial Development and Africa

Working Paper 42 - Global Financial Crisis: Implications and Lessons for Africa

The global financial system has witnessed rapid growth and substantial structural change duringthe last ten years leading to globalisation of financial markets. The integration of financial markets hasaccentuated the rapid flow of capital across borders as well as magnified the contagious effects offinancial crisis with wide implications for transmission of financial policies on the domestic economy andinternationally. The recent financial crisis which originated in East and South East Asia (hereafter Asia)and transformed into a global crisis is a case in point. At no time since the depths of the LDC debt crisisof the 1980s has the outlook for emerging markets appeared so bleak. Economic outlook in Asia andits financial crisis appears destined to last well into 1999, and the world faces the prospects of weakergrowth. This paper reviews recent trends in global financial markets, in particular the expanding financialturmoil, which was been triggered by the Asian crisis. It examines the major factors behind financialturmoil and its impact on African countries. The paper also explores the main lessons and policyimplications for African countries. Following this introduction, Section II gives a brief account of thedynamics of the crisis—its origin and channels of transmission from one region to another. Section IIIexamines the main causes of the crisis and Section IV provides a discussion of the qualitative andquantitative impact of the crisis on African countries. The main lessons and policy implications are drawin Section V. Section VI provides the concluding remarks.

Testing the weak-form market efficiency and the day of the week effects of some African countries.

The aims of this work are twofold. On the one hand, it aims to find evidence supporting the presence of the weak form efficiency of several emerging African stock markets by using both parametric as well as non parametric tests. The results indicate that none of the markets are characterised by random walks with the exception of the South African stock market. On the other hand, this study aims to detect the presence of the day of the week effects of these African stock markets. Results show the existence of day of the week effects, that is the typical negative Monday and Friday positive effects in several stock markets.African stock markets, random walk hypothesis, day of the week effects

Working Paper 109 - The First Africa Region Review for EAC/COMESA

The main objective of this paper is to present a mapping of trade-relatedbottlenecks in the EAC/COMESA region to eligible aid-for-trade (AFT)categories, and to articulate a strategy for mobilising significant amounts of aidfor trade. To do so, the paper reviews the constraints to trade in EAC/COMESA.It identifies existing AFT-related programmes and activities, and documents thestatus of their implementation, pointing out any gaps and the causes thereof.The paper is based on the premise that the EAC/COMESA region faces uniqueand severe constraints to trade related to the fact that many of the memberstates are land-locked. This, combined with poor infrastructure and services,cumbersome border procedures, inadequate mainstreaming of trade in nationaldevelopment strategies, and lack of progress in deepening economic integration,explains the region’s dismal trade performance, both intra-regionally andexternally. AEC/COMESA is aware of these constraints. The region haslaunched various initiatives to tackle them. The majority of these initiatives relateto trade facilitation measures.The North-South Corridor is one trade-related infrastructure project that hasattracted attention in the region, both by virtue of its scale and purported benefits.Even though the implementation of the project was slow initially, the politicalimpetus during the North-South Corridor High Level meeting in Lusaka, Zambiain April 2009 attracted financing in the region of US$1.2 billion. As the first pilot inEast Africa, the North-South Corridor clearly shows that Aid for trade can play akey role in sustaining ongoing efforts to overcome bottlenecks to trade.The key message is that an effective AFT strategy should focus primarily ontrade facilitation, with some emphasis on trade-related infrastructure. Sincesubstantial aid has traditionally been directed to technical assistance andcapacity building, and the trend is likely to continue, there is no need to build thiselement into the strategy per se. Such a strategy must: (a) Emphasise thecontribution of trade facilitation measures in reducing trade costs and enhancingexport competitiveness; (b) demonstrate the added benefits of modern traderelatedinfrastructure; (c) demonstrate the political will by the EAC/COMESAmember states to address the region’s constraints in the spirit of cooperation andsolidarity to landlocked neighbours; and (d) impress on the donor community theneed for greater AFT resources to help the region participate fully in global tradeand attain the MDGs.The Aid for Trade agenda should also highlight the importance of monitoring toshow its impact on trade and development. In this case, the EAC/COMESAregion should maintain a database of Aid for Trade for monitoring and evaluationpurposes.

Financial Development and Income Inequality: Evidence from African Countries

This paper present empirical evidence on how financial development is related to income distribution in a panel data set covering 22 African countries for the period between 1990 to 2004. A dynamic panel estimation technique (GMM) is employ and the findings indicate that income inequality decrease as economies develop their financial sector, which is consistent with the bulk of theoretical and empirical research. The result also confirm that educational attainment play a significant role in making income distribution more equal. We also find no evidence supporting the Greenwood-Jovanovic hypothesis of an inverted-U- shaped relationship between financial sector development and inequality.Financial development, income inequality, Africa G20, D63, 055

Macroeconomic uncertainty, financial development and economic growth in Zimbabwe

A conference paper on the impact on international environmental management policies on trade relations between developed and developing nations such as Zimbabwe. Originally prepared for: "Conference on Zimbabwe: macroeconomic policy, management and performance since independence: lessons for the 21st century," 19-21 August, Sheraton Hotel, Harare.Zimbabwe has one of the most well-diversified economic structures in Sub-Saharan Africa with a relatively sophisticated financial and capital market. Yet over the last two decades and a half, the country has experienced low and variable real GDP growth rates. In 1982-89 Zimbabwe recorded a negative average real GDP per capita growth rate of -0.2 percent, which fell further to an annual average rate of -3.2 percent in 1990-95. In addition, the country faces growing macroeconomic uncertainty mainly due to high public deficits and high inflation. Inflation, which is an indicator of macroeconomic uncertainty increased from an average of 13.7 percent in 1982-89 to 26.2 percent in 1990-95, while government budget deficit averaged over 9 percent of GDP between 1980 and 1995. Thus, as in other developing countries, macroeconomic stability and liberalisation are prerequisites for economic recovery and sustainable growth in Zimbabwe

Identifying agricultural marketing and trade policies with the potential to promote food security in countries of the SADCC region: a research discussion paper

A conference paper on food security in Southern Africa. Paper presented at the Third annual University of Zimbabwe conference on food security in Southern Africa, November 2-5, UZ, Mt. Pleasant, Harare

How Does the Institutional Setting for Creditor Rights Affect Bank Lending and Risk-Taking?

This paper investigates how the institutional setting for protection of creditor rights affects bank lending and risk-taking. An analytical model is specified to underpin banks‟ portfolio decisions, between loans and other earning assets such as government securities. The model is augmented with various metrics, which proxy the institutional setting for creditor rights, and is estimated and tested on an unbalanced three-dimensional dataset of commercial banks in 20 African countries for 1995-2008. It is found that three specific metrics induce banks to allocate a high proportion of their earning assets to loans: legal creditor rights; the efficient enforcement of creditor rights; and availability of information sharing mechanisms among banks. However, the three metrics appear to work through different channels. The enforceability of legal rights works not only through mitigating credit risks, but also through a composite effect of market competition and lower costs of information acquisition and contract enforcement. The legal rights metric and information sharing metric exclusively rely on the composite effect

How Can Economic and Political Liberalisation Improve Financial Development in African Countries?

The objective of this paper is to study the interactions between economic liberalisation, political liberalisation and financial development in African countries. More specifically, we seek to establish the impact of economic, political and institutional openness on financial deepening. The empirical approach will be two-step procedure, first using a difference in difference method to show the various aspect of financial liberalisation on economic and political freedom while the second step will be using panel data techniques from period 1990 to 2005. The estimation results can be summarised as the following, first, Economic and financial liberalisation did account significantly for the financial development performance. While political stability show a positive overall effect on financial development, the association with Political freedom is consistent only after controlling the endogeneity of Political freedom on financial development. This result indicates that the transformation of the political and economic environment has improved the performance of the financial sector

Financial instability, financial openness and economic growth in african countries

In the aftermath of the recent global financial crisis, the implication of financial liberalisation for stability and economic growth has come under increasing scrutiny. One strand of literature posits a positive relationship between financial liberalisation and economic growth and development. However, others emphasise that the link between financial liberalisation is intrinsically associated with financial instability which may be harmful to economic growth and development. In this study, we offer an empirical analysis assessing the relationship between financial instability, financial liberalisation, financial development and economic growth based on a dataset of 41 African countries spanning the years 1985-2010. The results suggest that the link between financial development and liberalisation has a positive and significant effect on financial instability but the latter has a harmful effect on economic growth, which are more pronounced in the pre- financial liberalisation periods than in the post-liberalisation