African Financial Development Dynamics: Big Time Convergence

Simplice A, Asongu (2012): African Financial Development Dynamics: Big Time Convergence.

Abstract

In the first critical assessment of convergence in financial development dynamics in Africa, we find overwhelming support for integration. The empirical evidence is premised on 11 homogenous panels based on regions(Sub-Saharan and North Africa), income-levels(low, middle, lower-middle and upper-middle), legal-origins(English common-law and French civil-law) and religious dominations(Christianity and Islam). We examine convergence in financial intermediary dynamics of depth, efficiency, activity and size. Findings suggest that countries with small-sized financial intermediary depth, efficiency, activity and size are catching-up with countries with large-sized financial intermediary depth, efficiency, activity and size respectively. We also provide the speeds of convergence and time necessary to achieve a full(100%) convergence. As a policy implication African governments should not relent in structural and institutional reforms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Convergence; Policy Coordination; Banking; Africa
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; P - Economic Systems > P5 - Comparative Economic Systems > P52 - Comparative Studies of Particular Economies

References

Alagidede, P.,(2008). “African Stock Market Integration: Implications for Portfolio Diversification and International Risk Sharing”, Proceedings of the African Economic Conferences 2008.

Allen, F., & Gale, D.,(2000). Comparing Financial Systems. The MIT Press, Cambridge, MA.

Allen, F., & Gale, D., (2009). Comparing Financial Systems. Cambridge, Mass and London, MIT Press.

Arellano, M., & Bond, S., (1991). “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations”. The Review of Economic Studies, 58, pp. 277-297.

Asongu, S. A., (2011a), “Law, finance, economic growth and welfare: why does legal origin matter?”, MPRA No. 33868.

Asongu, S. A., (2011b), “Law and finance in Africa”, MPRA No. 34080.

Asongu, S. A., (2011c), “Finance and democracy in Africa”, MPRA No. 35500.

Asongu, S. A., (2011d), “Why do French civil-law countries have higher levels of financial efficiency”, MPRA No. 33950.

Asongu, S. A., (2011e), “New financial intermediary development indicators for developing countries”, MPRA No. 30921.

Balcerowicz, L., & Fischer, S.,(2006). Living standards and the wealth of nations. Successes and failures in real convergence. The MIT Press.

Barro, R., (1991). “Economic Growth in a Cross Section of Countries”. Quarterly Journal of Economics 196 (2/May): 407–443.

Baltagi, B.H., & Demetriades, P.,(2011). “Introduction to the special issue on new perspectives on finance and development”, Empirical Economics, 41, pp.1-5.

Beine, M., Cosma, A., & Vermeulen, R.,(2010).“The dark side of global integration: increasing tail dependence“, Journal of Banking and Finance, 34, pp. 184-192.

Bessler, D.A., & Yang, J., (2003).“The structure of interdependence in international stock markets”, Journal of International Money and Finance, 22, pp.261-287.

Bondt, G., (2000). “Financial Structure and Monetary Transmission in Europe” . Cheltenham: Edward Elgar.

Bruno, G., De Bonis, R., & Silvestrini, A., (2011). “Do financial systems converge? New evidence from financial assets in OECD countries”, Journal of Comparative Economics; Forthcoming.

Calcagnini, G., Farabullini, F., Hester, D.D., (2000). “Financial Convergence in the European Monetary Union?” SSRI Working Paper Series 2022, University of Wisconsin, Madison.

Casu, B., & Girardone, C.,(2010). “Integration and efficiency convergence in the EU banking”, Omega, 38, pp.260-267.

Chen, G-M., Firth, M., & Rui, O.M.,(2002).“Stock market linkages: evidence from Latin America”, Journal of Banking and Finance, 26, pp.1113-1141.

Costantini, M., & Lupi, C., (2005). “Stochastic Convergence among European Economies”. Economics Bulletin, 3(38), pp.1-17.

Fung, M.K., (2009). “Financial development and economic growth: convergence or divergence?”, Journal of International Money and Finance, 28, pp.56-67.

Giannetti, M., Guiso, L., Jappelli, T., Padula, M., & Pagano, M.,(2002). “ Financial Market Integration, Corporate Financial and Economic Growth”, European Commission Economic Papers No. 179, Brussels.

Grubel, H., (1968). “Internationally diversified portfolio: welfare gains in capital flows”, American Economic Review, 58, pp. 89-94.

Holzl, W.,(2006). “Convergence of financial system: towards an evolutionary perspective”, Journal of Institutional Economics, 2, pp. 67-90.

International Monetary Fund (2006), “How do financial systems affect economic cycles?”, World Economic Outlook, September(Chapter 4).

Islam, N.,(1995). “Growth Empirics: A Panel Data Approach”, The Quarterly Journal of Economics, 110, (4), pp. 1127-1170.

Kim, S. J., Moshirian, F., & Wu, E., (2005). “Evolution of international stock and bond market integration: influence of the European Monetary Union”, Journal of Banking and Finance, 30, pp. 1507-1534.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.,(1998). “Law and finance”, Journal of Political Economy, 106, pp.1113-1155.

Levine, R., (2004). “Finance and Growth: Theory and Evidence”. NBER Working Paper 10766.

Levy, H., & Sarnat, M., (1970). “International diversification of investment portfolios”, American Economic Review, 60, pp.668-675.

Narayan, P.K., Mishra, S., & Narayan, S., (2011). “Do market capitalization and stocks traded converge? New global evidence”, Journal of Banking and Finance, 35, pp.2771-2781.

North, D.C.,(1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge, UK.

North, D.C.,(1994). “Economic performance through time”, American Economic Review, 84, pp.359-368.

Rajan, R., & Zingales, L.,(2003). “Banks and Markets: The Changing Character of European Finance”, NBER Working Paper No. 9595.

Rodrik, D.,(2006)., “Goodbye Washington consensus. Hello Washington confusion? A review of the World Bank’s economic growth in the 1990s: Learning from a decade of reform”, Journal of Economic Literature, 44, pp.973-987.

Rodrik, D., (2011). “The Future of Economic Convergence”, NBER Working Paper No. 17400.

Scholtens, B., & Naaborg, I.,(2005). “Convergence of Financial Intermediary Activities within Europe: A comparison of banks’ balance sheets in the EU and the New E.U Member States”, Department of Finance, University of Groningen.

Shleifer, A., (2009). “ The age of Milton Friedman”, Journal of Economic Literature, 47, pp.123-135.

Prichett, L., (1997). “Divergence, big time”, Journal of Economic Perspectives, 11, pp.3-17.

Umutlu, M., Akdeniz, L., & Altag-Salih, A.,(2010).“The degree of financial liberalisation and aggregated stock-return volatility in emerging markets”, Journal of Banking and Finance, 34(3), pp.509-521.

Von Furstenberg, G.M., & Jeon, B.N.,(1989).“International stock price movements: links and messages”, Brookings Papers on Economic Activity, 1, pp.125-179.

Weill, L.,(2009). “Convergence in banking efficiency across European countries”, International Financial Markets, Institutions and Money, 19, pp.818-833.

Yu, I-W., Fung, K-P., & Tam, C-S.,(2010). “Assessing the financial market integration in Asia-equity markets”, Journal of Banking and Finance, 34, pp.2874-2885.