How Has Politico-Economic Liberalization Affected Financial Allocation Efficiency? Fresh African Evidence

Abstract

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Liberalization and Financial Sector Competition: A Critical Contribution to the Empirics with an African Assessment

“…Accordingly, while economic freedom improves the formal financial sector, it consistently mitigates its semi-formal and informal financial counterparts. The explanation to this exception is simple: economic freedom has consistently been found (using the same dataset and time span) to improve financial allocation efficiency (Asongu, 2013d), which ultimately diminishes issues of surplus liquidity and eventual recourse for informal financial services. It is also interesting to note that the effect of the economic freedom index may be due to the substantial weight of its legal structure component.…”

On the Substitution of Institutions and Finance in Investment

“…In line with Asongu (2013b), due to the high degree of substitution (correlation) among various governance variables, there is redundancy of some information. Therefore we use Principal Component Analysis (PCA) to reduce the dimensions of political, economic and institutional governance.…”

“…Accordingly, when compared with other cross-country analysis, dynamic panel data estimation has many advantages (Demirgüç-Kunt & Levine, 2008;Asongu, 2013b). The dynamic panel regression model in first difference is presented as follows:…”

The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency

“…The recent global financial and European Monetary Unions (EMU) crises have reignited the debate about potential advantages from liberalisation and regionalisation, especially within the framework of financial allocation efficiency in developing countries (Asongu, 2013b). Some authors are of the position that the recent global financial crisis has substantially unravelled the drawbacks of regionalisation and liberalisation because, many developing economies which had previously experienced surges in inflows of foreign capital have had to also experience a sharp reversal in the same flows (Rodrik & Subramanian, 2009;Kose et al, 2011;Asongu, 2014b).…”

“…According to Kose et al (2006), many developing countries quickly embraced integration polices because the anticipated rewards were higher for developing countries compared to developed nations. Unfortunately, the surge in financial flows was associated with financial and currency crises in the late 1980s and 1990s.The pattern of these crises motivated a stream of scholars to start advocating that compared to developed countries, developing nations which liberalised their capital and trade accounts have been more affected by global crises (see Henry, 2007;Kose et al, 2011;Asongu, 2013b).…”