Financial Access and Productivity Dynamics in Sub-Saharan Africa

Asongu, Simplice (2019): Financial Access and Productivity Dynamics in Sub-Saharan Africa. Forthcoming in: International Journal of Public Aadministration

Abstract

The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Output; Financial Development; Sub-Saharan Africa
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F3 - International Finance > F30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

References

Abramovitz, M. (1986). “Catching up, forging ahead, and falling behind”. The Journal of Economic History, 46(02), pp. 385-406.

Aghion, P., & Bolton, P., (2005). “A theory on trickle-down growth and development”, Review of Economic Studies, 64(2), pp. 151-172.

Agoba, A. M., Abor, J., Osei, K. A., & Sa-Aadu, J. (2019). “Do independent Central Banks Exhibit Varied Bahaviour in Election and Non-Election Years: The Case of Fiscal Policy in Africa”. Journal of African Business. DOI: /10.1080/15228916.2019.1584263.

Ahouakan, E. W. V., & Diene, M., (2017). “Does School Quality Matter? Primary Schools Characteristics and Child Labour Intensity in Senegal,” Journal of African Development, 19(1), pp. 113-131.

Akinyemi, O., Efobi, U., Asongu, S., & Osabuohien, E., (2019). “Renewable Energy, Trade Performance and the Conditional Role of Finance and Institutional Capacity of sub-Sahara African Countries”, Energy Policy, 132(September), pp. 490-498.

Amavilah, A., Asongu, S. A., & Andrés, A. R., (2017). “Effects of globalization on peace and stability: Implications for governance and the knowledge economy of African countries”, Technological Forecasting and Social Change, 122(C), pp. 91-103.

Arellano, M., & Bover, O. (1995). “Another look at the instrumental variable estimation of errorcomponents models”. Journal of Econometrics, 68(1), pp. 29–52.

Asongu, S. A., Batuo, E., Nwachukwu, J. C., & Tchamyou, V. S., (2018). “Is information diffusion a threat to market power for financial access? Insights from the African banking industry”, Journal of Multinational Financial Management, 45(June), pp. 88-104.

Asongu, S. A, & De Moor, L., (2017). “Financial Globalisation Dynamic Thresholds for Financial Development: Evidence from Africa”, European Journal of Development Research, 29(1), pp.192-212.

Asongu, S. A., le Roux, S, & Biekpe, N., (2017). “Environmental Degradation, ICT and Inclusive Development in Sub-Saharan Africa”, Energy Policy, 111(December), pp.353-361.

Asongu, S. A., & Nwachukwu, J. C., (2017).“ Foreign Aid and Inclusive Development: Updated Evidence from Africa, 2005–2012”, Social Science Quarterly, 98(1), pp. 282-298.

Asongu, S. A., Nwachukwu, J. C., & Tchamyou, V. S., (2016). “Information asymmetry and financial development dynamics in Africa”, Review of Development Finance, 6(2), pp. 126-138.

Asongu, S. A., & Odhiambo, N. M., (2018a). “ICT, Financial Access and Gender Inclusion in the Formal Economic Sector: Evidence from Africa”, African Finance Journal, 20(2), pp. 46-66.

Asongu, S. A., & Odhiambo, N. M. (2018b). “Information asymmetry, financialization, and financial access”, International Finance, 21(3), pp. 297-315.

Asongu, S. A., & Odhiambo, N. M., (2019a).“Basic formal education quality, information technology, and inclusive human development in sub‐Saharan Africa”, Sustainable Development, 27(3), pp. 419-428.

Asongu, S. A., & Odhiambo, N. M., (2019b). “How enhancing information and communication technology has affected inequality in Africa for sustainable development: An empirical investigation”, Sustainable Development, 27(4), pp. 647-656.

Asongu, S. A., & Odhiambo, N. M., (2019c). “Economic Development Thresholds for a Green Economy in Sub-Saharan Africa”, Energy Exploration & Exploitation. DOI: 10.1177/0144598719835591.

Asongu, S. A., & Tchamyou, V. S., (2014). “Inequality, Finance and Pro-Poor Investment in Africa.” Brussels Economic Review, 57(4), pp. 517-547.

Bae, K., Han, D., & Sohn, H., (2012). “Importance of Access to Finance in Reducing Income Inequality and Poverty Level”, International Review of Public Administration, 17(1), pp. 1-24.

Baliamoune, M. (2009). “Openness, Growth and Convergence in Africa: Evidence from 1980-1999 Data”. Journal of African Development, 11(1), pp. 109-126.

Baliamoune‐Lutz, M. (2011). “Growth by Destination (Where You Export Matters): Trade with China and Growth in African Countries”. African Development Review, 23(2), pp. 202-218.

Barro, J. R., (2003). “Determinants of Economic Growth in a Panel of Countries”, Annals of Economics and Finance, 4(2), pp. 231-274.

Batabyal, S., & Chowdhury, A., (2015). “Curbing Corruption, Financial Development and Income Inequality”, Progress in Development Studies, 15(1), pp. 49-72.

Beck, T., Demirgüç-Kunt, A., & Levine, R. (2003). “Law and Finance: Why Does Legal Origin Matter?”Journal of Comparative Economics, 31(4), pp. 653–675.

Beck, T., Demirgüç-Kunt, A., & Levine, R., (2007). “Finance, inequality and the poor.” Journal of Economic Growth, 12(1), pp. 27-49.

Becker, G. S., Laeser, E. L., & Murphy, K. M. (1999). “Population and economic growth”. American Economic Review, 89(2), pp. 145-149.

Black, S. E., & Lynch, L. M., (1996). “Human-capital investments and productivity”. American Economic Review, 86(2), pp. 263-267.

Blundell, R., & Bond, S., (1998). “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, 87(1), pp. 115-143

Boadi, I., Dana, L. P., Mertens, G., & Mensah, L., (2017). “SMEs’ Financing and Banks’ Profitability: A “Good Date” for Banks in Ghana?”, Journal of African Business, 17(2), pp. 257-277.

Boamah, N. A. (2017). “The relevance of global sector influence in African sector portfolios,” African Journal of Economic and Management Studies, 8(2), pp. 205-220.

Boateng, A., Asongu, S. A., Akamavi, R., & Tchamyou, V. S., (2018). “Information Asymmetry and Market Power in the African Banking Industry”, Journal of Multinational Financial Management, 44(March), pp. 69-83.

Bocher, F. T., Alemu, B. A., & Kelbore, Z. G., (2017). “Does access to credit improve household welfare? Evidence from Ethiopia using endogenous regime switching regression”, African Journal of Economic and Management Studies, 8(1), pp. 51-65.

Bokpin, G. A., Ackah, C., & Kunawotor, M. E., (2018). “Financial Access and Firm Productivity in Sub-Saharan Africa”, Journal of African Business, 19(2), pp. 210-226.

Chapoto, T., & Aboagye, A. Q. Q., (2017). “African innovations in harnessing farmer assets as collateral”, African Journal of Economic and Management Studies, 8(1), pp. 66- 75.

Cheruiyot, K. J., (2017). “Determinants of Technical Efficiency in Kenyan Manufacturing Sector”, African Development Review, 29(1), pp. 44-55.

Chikalipah, S., (2017). “What determines financial inclusion in Sub-Saharan Africa?” African Journal of Economic and Management Studies, 8(1), pp. 8-18.

Chipote, P., Mgxekwa, B., & Godza, P., (2014). “Impact of Financial Liberalization on Economic Growth: A Case Study of South Africa”, Mediterranean Journal of Social Sciences, 5(23), pp. 1-8.

Chiwira, O., Bakwena, M., Mupimpila, C., & Tlhalefang, J. B., (2016). “Integration, Inclusion, Development in the Financial Sector and Economic Growth Nexus in SADC: Empirical Review”, British Journal of Economics, Management & Trade, 11(4), pp. 1-15.

Cisse, F., (2017). “Do Firms Learn by Exporting or Learn to Export? Evidence from Senegalese Manufacturing Firms," Journal of African Development, 19(1), pp. 133-160.

Daniel, A., (2017). “Introduction to the financial services in Africa special issue”, African Journal of Economic and Management Studies, 8(1), pp. 2-7.

Devarajan, S, Easterly, W., & Pack, H., (2001). “Is investment in Africa too high or too low? Macro- and micro-evidence”, Journal of African Economies, 10 (suppl 2), pp. 81-108.

Dunne, J. P., & Masiyandima, N., (2017). “Bilateral FDI from South Africa and Income Convergence in SADC,” African Development Review, 29(3), pp. 403-415.

Durlauf, S., Johnson, P. & Temple, J. (2005). “Growth econometrics”, in Aghion, P. and Durlauf, S. (Eds.), Handbook of Economic Growth, Elsevier, North Holland.

Easterly, W., & Levine, R. (2001). “It’s Not Factor Accumulation: Stylized Facts and Growth Models”. World Bank Economic Review,15(2), pp. 177–220.

Efobi, U. R., Tanaken, B. V., & Asongu, S. A., (2018). “Female Economic Participation with Information and Communication Technology Advancement: Evidence from Sub‐ Saharan Africa”, South African Journal of Economics, 86(2), pp. 231-246.

Elu, J. U. & Price, G. N., (2010). “Does China Transfer Productivity Enhancing Technology to Sub-Saharan Africa? Evidence from Manufacturing Firms”, African Development Review, 22(S1), pp. 587–598.

Elu, J. U., & Price, G. N., (2017). “Science Labor Supply in Sub-Saharan Africa: Is There a Gender Disparity in Preferences?,” African Development Review, 29(3), pp. 367-375,

Evans, D. S., & Jovanovic, B. (1989). “An estimated model of entrepreneurial choice under liquidity constraints”. The Journal of Political Economy, 1(1), pp. 808-827.

Fanta,, A. B & Makina, D., (2017). “Equity, Bonds, Institutional Debt and Economic Growth: Evidence from South Africa,” South African Journal of Economics, 85(1), pp. 86-97.

Fedderke, J. W., & Mengisteab, D. K., (2017). “Estimating South Africa's Output Gap and Potential Growth Rate,” South African Journal of Economics, 85(2), pp.161-177.

Fouda, O. J. P., (2009), “The excess liquidity of banks in Franc zone: how to explain the paradox in the CEMAC”, Revue Africaine de l’Integration, 3(2), pp. 1-56.

Franco, A., Malhotra, N., & Simonovits, G., (2014). “Publication Bias in the Social Sciences: Unlocking the File Drawer”, Science, 345(6203), pp. 1502-1505.

Galor, O., & Moav, O., (2004). “From physical to human capital accumulation: Inequality and the process of development”, Review of Economic Studies, 71(4), pp. 1001-1026.

Galor, O., & Zeira, J., (1993). “Income Distribution and Macroeconomics”, Review of Economics, 60(1), pp. 35-52.

Greenwood, J., & Jovanovic, B., (1990). “Financial development, growth and the distribution of income”, Journal of Political Economy, 98(5), pp. 1076-1107.

Heady, D. D., & Hodge, A. (2009). “The effect of population growth on economic growth: A meta-regression analysis of the macroeconomic literature”. Population and Development Review, 35(2), pp. 221-248.

Holtz-Eakin, D., Joulfaian, D., & Rosen, H. S., (1994). “Sticking it out: Entrepreneurial survival and liquidity constraints”. Journal of Political Economy, 102(1), pp. 53-75.

Iyke, B., N., & Odiambo, N. M., (2017). “Foreign exchange markets and the purchasing power parity theory: Evidence from two Southern African countries”, African Journal of Economic and Management Studies, 8(1), pp. 89-102.

Klenow P.J. & Rodriguez-Clare, A., (1997). “The Neoclassical Revival in Growth Economics: Has It Gone Too Far?”. NBER Macroeconomics Annual, 73–114.

Kreuser, C. F., & Newman, C., (2018). “Total Factor Productivity in South African Manufacturing Firms,” South African Journal of Economics, 86(S1), pp. 40-78.

Kumi, E., & Muazu I., & Yeboah, T., (2017). “Aid, Aid Volatility and Sectoral Growth in Sub-Saharan Africa: Does Finance Matter?,” Journal of African Business, 18(4), pages 435-456.

Kusi, B. A., Agbloyor, E. K., Ansah-Adu, K., & Gyeke-Dako, A. (2017). “Bank credit risk and credit information sharing in Africa: Does credit information sharing institutions and context matter?” Research in International Business and Finance, 42(December), pp.1123- 1136.

Kusi, B. A., & Opoku‐ Mensah, M. (2018). “Does credit information sharing affect funding cost of banks? Evidence from African banks”. International Journal of Finance & Economics, 23(1), pp. 19- 28.

Love, I., &Zicchino, L. (2006). “Financial Development and Dynamic Investment Behaviour: Evidence from Panel VAR”.The Quarterly Review ofEconomics andFinance, 46(2), pp. 190–210.

Maryam, K., & Jehan, Z., (2018). “Total Factor Productivity Convergence in Developing Countries: Role of Technology Diffusion,” South African Journal of Economics, 86(2), pp. 247-262.

Meniago, C., & Asongu, S. A., (2019). “Harnessing FDI spillovers on TFP and economic growth in Sub-Saharan Africa: the relevance of value chains across economic sectors”, African Governance and Development Institute Working Paper , Yaoundé.

Meniago, C., & Asongu, S. A., (2018). “Revisiting the Finance-Inequality Nexus in a Panel of African Countries”, Research in International Business and Finance, 46 (December), pp. 399-419.

Muazu I., & Alagidede, P., (2017). “Financial Development, Growth Volatility and Information Asymmetry in Sub-Saharan Africa: Does Law Matter?,” South African Journal of Economics, 85(4), pp. 570-588.

Nelson, R.R. & Pack, H. (1999). “The Asian Growth Miracle and Modern Growth Theory”. Economic Journal 109(457), pp. 416–36.

Nyasha, S., & Odhiambo, N. M. (2015a). “Do banks and stock market spur economic growth? Kenya’s experience”, International Journal of Sustainable Economy, 7(1), pp. 54-65.

Nyasha, S., & Odhiambo, N. M. (2015b). “The Impact of Banks and Stock Market Development on Economic Growth in South Africa: An ARDL-bounds Testing Approach”, Contemporary Economics, 9(1), pp. 93-108.

Obeng, S. K., & Sakyi, D., (2017). “Macroeconomic determinants of interest rate spreads in Ghana”, African Journal of Economic and Management Studies, 8(1), pp. 76-88.

Odhiambo, N. M., (2010). “Financial deepening and poverty reduction in Zambia: an empirical investigation”, International Journal of Social Economics, 37(1), pp. 41-53.

Odhiambo, N. M., (2013). “Is financial development pro-poor or pro-rich? Empirical evidence from Tanzania”, Journal of Development Effectiveness, 5(4), pp. 489-500.

Odhiambo, N. M., (2014). “Financial Systems and Economic Growth in South Africa: A Dynamic Complementarity Test”, International Review of Applied Economics, 28(1), pp. 83-101.

Ofori-Sasu, D., Abor, J. Y., & Osei, A. K., (2017). “Dividend Policy and Shareholders’ Value: Evidence from Listed Companies in Ghana”, African Development Review, 29(2), pp. 293-304.

Okafor, G., Piesse, J., & Webster, A., (2017). “FDI Determinants in Least Recipient Regions: The Case of Sub†Saharan Africa and MENA,” African Development Review, 29(4), pp. 589-600.

Orji, A., Aguegboh, E., & Anthony-Orji, O. I., (2015). “Real Sector Output and Financial Liberalisation in Nigeria”, Journal of Infrastructure Development, 7(2), pp. 136-150.

Osabuohien, E. S., & Efobi, U. R., (2013). “Africa’s money in Africa”, South African Journal of Economics, 81(2), pp. 292-306.

Osah, O., & Kyobe, M., (2017). “Predicting user continuance intention towards M-pesa in Kenya”, African Journal of Economic and Management Studies, 8(1), pp. 36-50.

Romer, P. M., (1986). “Increasing returns and Long-run growth”. Journal of Political Economy, 94(5), pp. 1002-1037.

Romer, P. M., (1993). “Idea gaps and object gaps in economic development”. Journal of monetary economics, 32(3), pp. 543-573.

Roodman, D. (2009). “How to Do Xtabond2: An Introduction to Difference and System GMM in Stata”. Stata Journal, 9(1), pp. 86–136.

Rosenberg, M. S., (2005). “The file-drawer problem revisited: a general weighted method for calculating fail-safe numbers in meta-analysis”, Evolution, 59(2), pp. 464-468.

Ruben, R., Bekele, A. D., & Lenjiso, B. M., (2017). “Quality upgrading in Ethiopian dairy value chains: dovetailing upstream and downstream perspectives”, Review of Social Economy, 75(3), pp. 296-317.

Sahoo, P., Dash, R. K., & Nataraj, G., (2010). “Infrastructure Development and Economic Growth in China”, IDE Discussion Paper No. 261, Chiba.

Saxegaard, M., (2006). “Excess liquidity and effectiveness of monetary policy: evidence from sub-Saharan Africa”, IMF Working Paper No. 06/115, Washington.

Ssozi, J., & Asongu, S. A., (2016a). “The Comparative Economics of Catch-up in Output per Worker, Total Factor Productivity and Technological Gain in Sub-Saharan Africa”, African Development Review, 28(2), pp. 215-228.

Ssozi, J., & Asongu, S. A., (2016b). “The Effects of Remittances on Output per Worker in Sub-Saharan Africa: A Production Function Approach”, South African Journal of Economics, 84(3), pp. 400-421.

Tchamyou, V. S, (2017). “The Role of Knowledge Economy in African Business”, Journal of the Knowledge Economy, 8(4), pp. 1189–1228.

Tchamyou, V. S., (2019a). “Education, Lifelong learning, Inequality and Financial access: Evidence from African countries”.Contemporary Social Science. DOI: 10.1080/21582041.2018.1433314.

Tchamyou, V. S., (2019b).“The Role of Information Sharing in Modulating the Effect of Financial Access on Inequality”.Journal of African Business, 20(3), pp. 317-338.

Tchamyou, V. S., & Asongu, S. A., (2017).“Information Sharing and Financial Sector Development in Africa”, Journal of African Business, 18(7), pp. 24-49.

Tchamyou, V. S., Asongu, S. A., & Nwachukwu, J. C., (2018). “Effects of asymmetric information on market timing in the mutual fund industry”, International Journal of Managerial Finance, 14(5), pp.542-557.

Tchamyou, V.S., Erreygers, G., & Cassimon, D., (2019). “Inequality, ICT and Financial Access in Africa”, Technological Forecasting and Social Change,139(February), pp. 169-184.

Temple, J. (1999). “The New Growth Evidence”. Journal of Economic Literature, 37(1), pp. 112-156.

Uduji, J.I. & Okolo-Obasi, E. N., (2018a). “Adoption of improved crop varieties by involving farmers in the e-wallet programme in Nigeria”. Journal of Crop Improvement, Journal of Crop Improvement, 32 (5), pp. 717-737.

Uduji, J.I. & Okolo-Obasi, E. N., (2018b). “Young rural women’s participation in the e-wallet programme and usage intensity of modern agricultural inputs in Nigeria”, Gender, Technology and Development, 22(1), pp. 59-81.

Veeramacheneni, B., Vogel, R., & Ekanayake, E.M., (2008). “Information technology, FDI and economic growth: an india case study”. Southwest Economic Review, 35 (1), pp. 95-112.

Wale, L. E., & Makina, D., (2017). “Account ownership and use of financial services among individuals: Evidence from selected Sub-Saharan African economies”, African Journal of Economic and Management Studies, 8(1), pp. 19-35.

Yaya K. Y., & Cabral, F. J., (2017). “Innovation and Volatility of the GDP Growth Rate: Case of the Economies of Sub-Saharan Africa,” Journal of African Development, 19(1), pp. 88-112.

Young, A. (1995). “The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience”. Quarterly Journal of Economics, 110(3), pp. 641–80.