Regional Financial Integration

Abstract

The chapter investigates the effect of regional financial integration on financial development and its interaction with Diaspora remittance inflows in the Southern African Development Community (SADC) region from 2006 to 2018. The study employed de jure and de facto indicators of financial integration, whilst financial development is measured using credit to the private sector as a percentage of GDP. The econometric analysis utilises the Generalized Method of Moments (GMM). Results show that the de facto measure of financial integration has a significant positive impact on financial development, whilst de jure indicators give mixed and insignificant results. However, given that literature shows that de facto indicators are robust compared to de jure indicators, it is concluded that the impact of financial integration on financial development is positive and linear. The authors of this chapter also analyse the interaction between financial sector development and Diaspora remittance flows by employing panel Granger Causality Tests, which show a bi-directional causality between financial sector development and Diaspora remittance flows Nomusa Ndlovu, Forget Mingiri Kapingura & Asrat Tsegaye 6 in the SADC region. These findings suggest that innovations in the financial sector influence Diaspora remittance inflows and vice-versa. Thus, the authors of this chapter recommend that governments of member states in the SADC region formulate and implement policies that enhance financial integration. This action may involve financial institutions opening branches in any country within the region, allowing remitters to remit at lower transaction costs and have implications for economic growth and poverty alleviation.