Financial System and Economic Development in Africa: A Review and Policy Recommendations

Abstract

This paper gears towards expounding the role, capacity, suitability, challenges and solutions for African financial systems in enhancing economic growth. This article employs a quasi-meta-analysis method of literature where an online search of materials related to the field of financial system and economic development were visited. Several journal publishers were included in finding the materials for this review. Search words and synonyms were used in the search processes, the reviewed papers were used in discussing the related issues in the topic. It shows that, both theoretically and empirically, a financial system in an economy facilitates the following roles: first, it enables transfer of resources through time, across borders and among economic entities. Second, it facilitates mobilization and pooling of savings. Third, it facilitates the allocation of capital competitively. The reviewed evidences show that, Africa's financial systems have this functionality potential if there will be among others; liberalization of economies, strengthening of legal framework and expansion of tax and investor bases. The African situation needs to seek innovative financial products such as Islamic bonds, sovereign bonds and diaspora bonds. Empower local/municipal governments' role in raising finance through municipal bonds. Discharge differential financial policies to suit characteristics of the African populations. Implement agenda on ICT, information sharing, and sensitization on savings and promote financial inclusion at all levels of financial intermediation. This article attempts to deduce from empirical evidences specific implications and link them to both policy and practical realities for the linkage between financial development and economic development in the African experiences. No prior article has attempted to look at this issue in this light within the African context.

Is Carbon Neutrality Attainable with Financial Sector Expansion in Various Economies? An Intrinsic Analysis of Economic Activity on CO2 Emissions

“…Activities involving the lending and borrowing of funds, investments, and offers of credit, stock trading, and insurance all provide the mechanism by which economic activities successfully take place. Kapaya [30] points out the three main roles of the financial system in the attainment of economic development in Africa: first, the facilitation of resource transfer across borders and time; second, the mobility of saving pools; and third, the competitive allocation of capital by investment. In surveying 22 emerging markets, Nguyen et al [31] also found that financial development has a positive effect on economic growth and that their relationship is linear.…”

A Panel Analysis on the Nexus between Financial Development, Oil Production, and Trade-Openness and Its Impact on Sustainable Economic Growth: Evidence from Selected Arab Economies

“…Modernised financial systems greatly enhance the ability to efficiently allocate resources, mobilise funds, and provide access to credit for firms and individuals [12]. Investment and entrepreneurship are bolstered by stable financial systems, boosting output and creating more employment opportunities [13]. According to [14], banking and financial markets that are both stable and liquid are key to fostering capital accumulation and luring in FDI.…”