How Has Politico-Economic Liberalization Affected Financial Allocation Efficiency? Fresh African Evidence
Economics Bulletin. 33(1), pp. 663-676. (2013).
22 Pages Posted: 9 Sep 2014 Last revised: 1 Apr 2015
Date Written: January 8, 2013
This paper investigates how financial, trade, institutional and political liberalization policies have affected financial efficiency in Africa. It uses updated data to appraise second generation reforms in order to gather fresh evidence and derive more updated policy implications. The ‘freedom to trade’ and ‘economic freedom’ indices are also employed. The following findings are established. (1) Financial liberalization mitigates financial allocation efficiency, with the magnitude of the de jure indicator (KAOPEN) higher than that of the de facto measurement (FDI). (2) Exports significantly improve financial efficiency. (3) Institutional liberalization has a positive effect on the efficiency of allocation while the effect of political liberalization is not significant. (4) Freedom of trade decreases (improves) financial (banking) system efficiency. (5) Economic freedom facilitates the transformation of mobilized financial resources (deposits) into credit for economic operators. Justifications for these nexuses are provided.
Keywords: Liberalization policies; Capital allocation; Africa
JEL Classification: D6; F30; F41; F50; O55
Suggested Citation: Suggested Citation