Commodity price volatility, risk exposure and development of financial institutions

Rexford Abaidoo and Elvis Kwame Agyapong

International Journal of Emerging Markets, 2023, vol. 19, issue 11, 4132-4154

Abstract: Purpose - This study examines the dynamics of financial institution development among economies in sub-Saharan Africa (SSA) and how volatility in forex-adjusted price of key globally traded, commodities and macroeconomic risk influence such development. Design/methodology/approach - The study is based on data collected from the period starting 2001 to 2019 for relevant variables; and the empirical test was performed using the two-step system generalized method of moments (TSS-GMM) estimation method. Findings - Empirical estimates suggest that volatility in forex-adjusted prices of crude oil and cocoa are inimical to development of financial institutions among economies in the sub-region. On the other hand, volatility in the price of gold is found to have a significant positive effect on development of financial institutions. Additionally, political instability is found to exacerbate the adverse effect of volatility in the price of globally traded commodities on the development of financial institutions in the sub-region. Originality/value - The study verifies how volatility in forex-adjusted prices of key traded commodities on the global market influence development of financial institutions in the sub-region. Additionally, the study examines the impact of macroeconomic risk, a principal component analysis (PCA) constructed index on the development trajectory of financial institutions. Finally, the authors examine the moderating role of institutional quality and political instability in the relationship in question.

Keywords: Financial institutions; Commodity price volatility; Macroeconomic risk; GMM model; C33; G2; G21 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-10-2021-1629

DOI: 10.1108/IJOEM-10-2021-1629

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