Nexus among Financial Openness Shocks, Institutional Development and Total Factor Productivity in Africa: A Panel SVAR Analysis

Solomon O. Okunade and Rufus A. Ajisafe

African Journal of Economic Review, 2021, vol. 10, issue 01

Abstract: This study investigates the dynamic relationship among financial openness, institutional development, and TFP for the period of 1996 to 2019 across 28 selected African countries. We employ Panel Structural Vector Autoregression with orthogonalised structural identifying restrictions to find a dynamic negative relationship between financial openness and TFP; negative effect of institutional development on TFP; negative effect of institutional development on financial openness. Meanwhile, we find neutral effects of TFP and financial openness on institutional development in Africa. Therefore, the study concludes that the negative consequences of financial openness overwhelm its positive impact on TFP in Africa because the quality of institutions in most of the selected African countries are weak and poorly developed to checkmate excesses, corruptions and political interferences in the financial markets, to ensure appropriate channelisation of capitals, and to foster productive investments which would in turn increase TFP and sustain growth in the selected African countries. Therefore, we recommend that governments and policymakers in the selected African countries should ensure persistent improvements in the quality of institutional frameworks to premeditate the positive benefits of financial openness on TFP, rather than leaking its benefits on growth in the selected African countries.

Keywords: International; Development (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ags:afjecr:320561

DOI: 10.22004/ag.econ.320561

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