Showing papers by "Joshua Abor published in 2019"

Monetary Policy and Financial Inclusion in Sub-Sahara Africa: A Panel VAR Approach

Abstract: This article investigates the dynamic and bi-causal link between monetary policy and financial inclusion in sub-Saharan Africa using a panel VAR framework. The researcher obtained data from...

Financial inclusion and financial sector development in Sub-Saharan Africa: a panel VAR approach

Abstract: The purpose of this paper is to investigate the dynamic link between financial inclusion and financial sector development (FSD) in Sub-Saharan Africa.,This paper employs a panel vector autoregressive framework to examine the dynamic link between financial inclusion and FSD in Sub-Saharan Africa.,The findings indicate that there is a reverse causality between FSD and financial inclusion in both the Sub-Saharan Africa countries sample and the full sample. It is evident that financial inclusion is a driver of FSD and vice versa.,The practical implication of this study is that financial inclusion should not only be pursued as a policy objective but it could also be an outcome variable of FSD and vice versa. This implies that African economies and governments in their effort to enhance financial inclusion, FSD can serve as a policy tool. This means that policies aimed at promoting financial inclusion will not impede FSD because the two are complementary. This suggests that we can achieve financial inclusion without sacrificing FSD and vice versa.,This paper provides first empirical evidence of the link between financial inclusion and FSD from the Sub-Saharan Africa perspective using data sourced from World Development Indicators spanning from 1990 to 2014 for 48 Sub-Saharan African economies and 217 economies in the world for the full sample.

Central bank independence, elections and fiscal policy in Africa: Examining the moderating role of political institutions

Abstract: The purpose of this paper is to primarily investigate the ability of independent central banks (central bank independence (CBI)) to improve fiscal performances in Africa, accounting for election years, and also to examine whether the effectiveness of CBI in improving fiscal performance is enhanced by higher political institutional quality.,Using recent CBI data from Garriga (2016) on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, the authors apply a two stage system GMM with Windmeijer (2005) small sample robust correction estimator to examine the impact of CBI and elections on fiscal policy in Africa, other developing countries and developed countries.,The authors provide evidence that unlike in other developing countries and developed countries, CBI does not significantly improve fiscal performance in Africa. However, the effectiveness of CBI in improving fiscal performance in Africa is enhanced by higher levels of institutional quality. Although elections directly worsen fiscal performance in Africa, institutional quality enhances CBI’s effect on improving fiscal performance in election years across Africa, other developing countries and developed countries.,The findings of the study are significant as they provide insight into the benefits of having strong institutions to complement independent central banks in order to control fiscal indiscipline in election years.,The study is the first among the studies of CBI-fiscal policy nexus, to measure fiscal policy using net central bank claims on government as a percentage of GDP. In addition to the use of fiscal balance, this study also uses cyclically adjusted fiscal balance as a measure of fiscal policy. This is a critical channel through which independent central banks can constrain government spending. It also compares findings in Africa to other developing countries, noting some differences.

Funding structure and technical efficiency: A data envelopment analysis (DEA) approach for banks in Ghana

Abstract: The purpose of this paper is to examine the effect of funding structure on technical efficiency of banks in Ghana, between 2011 and 2016.,Employing the random-effect and the truncated panel data of 25 banks, the results present new evidence.,The findings reveal that Ghanaian banks are less technically efficient, as the average efficiency scores generated is below the threshold of 1. Furthermore, the results show that banks in Ghana finance their operations mainly with deposit source of funding. The results reveal a significantly positive relationship between funding structure and technical efficiency. However, internally generated source of funds was negatively linked with technical efficiency. This is not surprising because banks that rely on external funds attract higher costs than internally generated funds, and this puts pressure on managers to perform. The results are relevant to emerging economies when the authors use additional macroeconomic factors.,Thus, a proportionally larger deposit base funding would typically lead to an overall increase in technical efficiency of banks in Ghana. Shareholders should put pressure on managers to plough back earnings in order to increase the use of internally generated funds, thus, increasing technical efficiency. Banks that are inefficient should make some adjustments to their weights of inputs and/or outputs combinations by following their benchmark banks (efficient banks) to improve their efficiency.,The results of this study have important implications for regulators, investors and policy makers, particularly an emerging economy. The implication of the study to investors is that investors should be able to identify an appropriate source of funds that can be used efficiently to maximize their wealth in emerging markets. It is important for regulators and managers of banks to improve technical efficiency by considering the role that macroeconomic and monetary environment play when identifying and using various sources of funds as a strategy to improve bank efficiency.,Consequently, future research should investigate the impact of funding structure on technical efficiency for other regions and considering their interactions with institutional quality, macroeconomic factors and financial stability.,To the best of the authors’ knowledge, the study is the first to fulfill an urgent need to explore a robust approach of measuring technical efficiency and funding structure within the context of banks over six-year period, prompting insightful avenues to the survival, growth and performance of financiers in emerging economy.

Financial access and economic development: the moderating role of financial consumer protection

Abstract: The purpose of this paper is to examine the moderating role of financial consumer protection (FCP) in the access–development nexus,The study is based on cross-country data on 102 countries surveyed in the World Bank Global Survey on FCP and Financial Literacy (2013) The White heteroscedasticity adjusted regressions and Two-stage least squares regressions (2SLS) are used for the estimation,Interactions between FCP regulations that foster fair treatment, disclosure, dispute resolution and recourse and financial access have positive net effects on economic development However, there is no sufficient evidence to suggest that interactions between financial access and enforcement and compliance monitoring regulations have a significant effect on economic development,First, policy makers should continue with efforts aimed at instituting FCP regimes as part of strategies aimed at broadening access to financial services for enhanced economic development Second, instituting FCP regimes per se may not be enough Policy makers need to consider possible intervening factors such as the provision of adequate resources and supervisory authority, for compliance monitoring and enforcement to achieve the expected positive effect on economic development,This study extends evidence in the law–finance–growth literature by providing empirical evidence on the effect of legal institution specific to the protection of retail financial consumers on the access–development nexus using a nouvel data set, the World Bank Global survey on FCP and Financial Literacy (2013)

Financial consumer protection and economic growth

Abstract: The purpose of this paper is to examine the link between financial consumer protection (FCP) and economic growth.,The authors use cross-country data on 114 countries surveyed in the World Bank Global Survey on FCP and Financial Literacy (2013) and endogenous treatment regressions for the estimation.,The results indicate that FCP enhances economic growth through fair treatment, responsible lending, enforcement and dispute resolution and recourse regulations. The authors find no evidence to suggest that disclosure and compliance monitoring regulations have an effect on economic growth.,This study provides rich insight into the important question faced by policy makers, as to which FCP regulatory mechanisms to put in place to enhance economic growth.,This study provides current, cross-country empirical evidence on the debate as to whether FCP enhances economic growth.

Do Shareholders Fight for Firm Value or Market Value in Emerging Markets? The Mediating Effect of Board Structure Dynamics on Dividend Policy Decision

Abstract: The paper examines the mediating effect of board structure dynamics on the relationship between dividend payout and shareholders’ wealth at the firm level and market level. Panel regression models are used by applying data from 27 listed firms in Ghana between 2010 and 2017. We find that board structure dynamics have a direct effect on shareholders’ wealth at both levels. However, the results reveal new evidence that board structure dynamics play a mediating role on the relationship between dividend policy decision and shareholders’ wealth only at the market level. We find that independent directors and CEO duality significantly reduce market value of shareholders through dividend payout decision. However, independent directors and longer CEO tenure in office mediate a positive effect on the relationship between dividend policy and shareholders’ wealth at the market level. Thus, the mediating effect of board structure dynamics, particularly independent directors and CEO tenure, are important in predicting a positive relationship between dividend policy and shareholders’ wealth at the market level than at the firm level. Therefore, regulatory bodies and investors should provide strong board structure dynamics that serve as a mediating mechanism for prudent dividend policy decisions that add value to shareholders’ wealth.

The Role of Financial Markets and Institutions in Private Sector Development in Africa

Abstract: The private sector is mostly regarded as an important contributor to Africa's growth. However, the issue of finance has been identified as a major constraint to the development of the sector. This chapter provides a comprehensive review of the private sector in Africa and discusses how Africa's financial sector can make the private sector the engine of growth it is supposed to be. It catalogues the characteristics of Africa's private sector, its contributions to economic development and the challenges it faces. Furthermore, the chapter examines the role of finance in promoting private sector development in Africa and discusses the constraints to extending financial inclusion in Africa. The extant literature suggests the existence of a wide range of conventional and innovative funding sources for the private sector. In particular, innovative funding sources such as remittances, crowdfunding, structured trade finance, private equity and venture capital, green bonds, leasing and factoring, mobile money services and alternative capital markets for small and medium enterprises are advocated.

Financial freedom, market power and bank margins in sub-Saharan Africa

Abstract: Purpose - This paper examines the effect of financial (banking) freedom and market power on bank net interest margins (NIM). Design/methodology/approach - The study uses data from 11 sub-Saharan African countries over the period, 2006-2012, and the system generalized method of moments to assess how financial freedom affects the relationship between market power and bank NIM. Findings - The authors find that both financial freedom and market power have positive relationships with bank NIM. However, there is some indication that the impact of market power on bank margins is sensitive to the level of financial freedom prevailing in an economy. It appears that as competition intensifies, margins of banks in freer countries are likely to reduce faster than those in areas with more restrictions. Practical implications - Competition policies could be guided by the insight on how financial freedom moderates the effect of market power on bank margins. Originality/value - This study provides new empirical evidence on how the level of financial freedom affects bank margins and the market power-bank margins relationship.

The role of technology as an absorptive capacity in economic growth in emerging economies: A new approach

Abstract: Studies have shown that the effects of Foreign Direct Investment (FDI) on economic growth have not always been direct, especially in developing regions; certain characteristics must exist in the economy for the effects of FDI to be well absorbed. Therefore, this study sought to assess the economic impact of FDI on economic growth in Sub-Saharan African (SSA) countries, factoring in technology as an absorptive capacity. Because of the scarcity of data on a viable proxy for technology in the African context, we measure technology in a novel approach, using annual number of published innovation-related papers as a proxy for technological presence. Data from forty-three Sub-Saharan countries over a 19-year period (from 1990 to 2008) was analyzed. Using a Fixed Effects (FE) regression model, the study found that FDI had a negative and significant effect on GDP, which is our proxy for economic growth. However, when FDI is interacted with technology, the relationship turns positive and significant. This implies that countries with technological presence are more able to absorb from FDI than those with little technology. Furthermore, the study found that countries with high technology were able to absorb more from FDI than those with low technology.