World Development Sustainability (Jun 2023)
Governance Quality and Financial Development in Africa
Abstract
The study examines the effect of governance quality on financial sector development using an empirical panel dataset from 45 African countries for the period 1996–2018. To this end, four bundled governance quality indicators (i.e., general, political, economic, and institutional) variables are employed. The empirical estimation is based on Quantile Regression and other subsidiary Model. The inspiration for this estimation technique is based on the argument that the effect of governance quality is contingent on the existing level of financial development, and governance – financial development policies, to be effective, need to be tailored differently across countries with low, intermediate and high levels of financial sector development. The general findings are as follows: First, development in governance institutions promotes financial sector development. Second, in most of the cases, the impact of governance quality is higher in terms of magnitude in the upper quantiles of the general, political, economic and institutional governance distributions. Third, the effect of governance institutions is significantly higher in terms of magnitude in the top quantiles of the economic governance distribution. The results remain robust over alternative econometric estimation techniques.
