Financial liberalisation, financial development and financial crises in SADC countries

Clement Moyo and Pierre Le Roux

Journal of Financial Economic Policy, 2020, vol. 12, issue 4, 477-494

Abstract: Purpose - The impact of financial reforms and financial development on an economy has received considerable attention over the recent past. This paper aims to investigate whether financial liberalisation and financial development increase the likelihood financial crises in Southern African development community (SADC) countries. Design/methodology/approach - Due to the binary nature of the dependent variable, the logit model is used for the analysis using data for the period 1990 to 2015. Findings - The results showed that financial liberalisation captured by real interest rates reduces the likelihood of financial crises. Furthermore, regulatory quality strengthens this reductive effect of financial liberalisation on the probability of financial crises. On the other hand, financial development represented by bank credit increases the incidence of financial crises. The results also suggest that financial liberalisation may increase the likelihood of financial crises indirectly through financial development. Research limitations/implications - The study recommends that a sound regulatory and supervisory framework be established as well as institutional quality raised to curb the effect of financial development on the incidence of financial crises. Originality/value - There is scant evidence on the role that financial liberalisation and financial development play in the incidence of financial crises in the SADC. This study incorporates the effect of institutional quality in the analysis which has been neglected by most studies on financial reforms in SADC countries. A number of recent studies in SADC countries conclude that financial development resulting from financial reforms, may hinder economic growth. Therefore, this study sheds light on this negative relationship.

Keywords: Financial markets and the macroeconomy; Financial economics; Macroeconomic policy; Econometric modelling; Financial liberalization; Financial crises; Financial development; Logit model; G01; G21; G28; C23; E60 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Financial liberalisation, financial development and financial crises in SADC countries (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-07-2018-0102

DOI: 10.1108/JFEP-07-2018-0102

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