Why do French civil-law countries have higher levels of financial efficiency?

The dominance of English common-law countries in prospects for financial development in the legal-origins debate has been debunked by recent findings. Using exchange rate regimes and economic/monetary integration oriented hypotheses, this paper proposes an “inflation uncertainty theory” in providing theoretical justification and empirical validity as to why French civil-law countries have higher levels of financial allocation efficiency. Inflation uncertainty, typical of floating exchange rate regimes accounts for the allocation inefficiency of financial intermediary institutions in English common-law countries. As a policy implication, results support the benefits of fixed exchange rate regimes in financial intermediary allocation efficiency.Banking; allocation efficiency; exchange rate; inflation; economic integration

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.

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

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

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

Finance and democracy in Africa

The motivations of the Arab Spring and hitherto unanswered questions about some of its dynamics inspired this paper, which focuses on how democracy, polity and autocracy affect financial development dynamics of depth, efficiency, activity and size in Africa; contingent on religious-domination, income-levels and colonial-legacies. Findings could be summarized in the following. (1) Authoritarian regimes have a higher propensity to effect policies that favor the development of financial intermediary depth, activity and size. Democracy has important effects on the degree of competition for public offices but less significant effects in comparison with autocracy on policies towards financial development. (2) Christian-dominated countries have higher (lower) levels of financial intermediation efficiency (depth) than-Islam oriented countries. (3) Income-levels also matter in financial development as poor countries have a lower propensity to improve their financial dynamics than wealthy states. (4) On average English common-law countries have better democratic institutions that their French civil-law counterparts. (5) There is evidence of a U-shape relationship between national wealth and the level of democracy, with Low-income countries experiencing lower (higher) levels of democracy than Upper (Lower) middle income countries. As a policy implication, once democracy is initiated, it should be accelerated (to edge the appeals of authoritarian regimes) and reap the benefits of level and time hypotheses in financial development.Banking; Finance; Politics; Democracy; Development

Finance and growth: Schumpeter might be wrong in our era. New evidence from Meta-analysis

In the first meta-study on the finance-growth nexus, we bridge the gap between Schumpeterian authors and sympathizers of Andersen & Tarp (2003). Over 20 fundamental characteristics that have influenced the debate over the last decades are examined. The empirical evidence is based on 196 outcomes from 20 studies. For the investigated Andersen & Tarp hypotheses, while we find only partial support for their position on the lack of substantial empirical evidence on a positive finance-growth nexus, the stance that a negative nexus is characteristic of African and Latin American countries is strongly rejected. Schumpeter’s thesis might be wrong in our era because of: endogeneity-based estimations, publication bias and, effects of financial activity. A historical justification is also discussed.Meta analysis; Finance; Economic growth; Publication bias

Investment and inequality in Africa: which financial channels are good for the poor?

This paper examines how domestic, foreign, private and public investments affect income-inequality through financial intermediary dynamics of depth, efficiency, activity and size. With the exception of financial allocation efficiency, financial channels of depth and activity are good for the poor as they diminish estimated household income-inequality. Financial size does not have a significant income-redistributive effect. Financial allocation efficiency has a disequalizing effect on income-distribution; implying policies designed to improve the allocation of mobilized funds to economic agents only benefit the rich to the detriment of the poor. The use of financial and investment dimensions previously missing in the literature provide new insights into the two contrasting theories in the finance-inequality nexus.Finance; Investment; Poverty; Inequality; Africa

The political economy of development assistance: peril to government quality dynamics in Africa

This paper assesses the effectiveness of foreign aid in improving government institutions in 52 African countries using updated data(1996-2010). Findings suggest development assistance deteriorates government quality dynamics of corruption-control, political-stability, rule of law, regulation quality, voice and accountability and government effectiveness. It is therefore a momentous epoque to solve the second tragedy of foreign aid; 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 really care about the poor to hold aid agencies accountable for results.Foreign Aid; Political Economy; Development; Africa

Law and finance in Africa

This paper assesses how legal-origin influences financial development through regulation quality and the rule of law. It uses data collected after pioneering works on the law-finance nexus to assess hypotheses resulting there-from in the context of Africa. Distinctions are made between English, French, French sub-Saharan, Portuguese and North African countries in how their legal origins affect financial intermediary dynamics of depth, efficiency, size and activity. In terms of policy implications results support the benefits of law channels to financial development in the continent.Law; finance; banks; Africa