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Fragmentation and financial development in Sub-Saharan Africa Countries: the case of diversity debit versus diversity dividend theses

Kazeem Ajide ()

Economic Change and Restructuring, 2020, vol. 53, issue 3, No 2, 379-428

Abstract: Abstract While the development impacts of finance have been extensively documented in the empirical growth and financial development literatures on the one hand, the list of drivers of financial development is undoubtedly expansive to accommodating some other important variables on the other hand. Owing to the growing importance of fragmentation on development outcomes, this study specifically queries how fragmentation influences financial development for a panel of Thirty-five (35) sub-Saharan African countries, over the period 2005–2015. We proxy fragmentation with broad measures of ethnicity and religion which are further decomposed into their subcomponent indices viz.: fractionalization and polarization, respectively. The empirical evidence is based on Pooled Ordinary Least Squares, Fixed Effects Model and Dynamic System Generalized Method of Moments with forward orthogonal deviations. The following are the main findings. First, ethnic polarization is found to exert a positive significant impact on various measures of financial development thus validating the Ethnic Diversity Dividend Thesis. Second, the much prevalent view of the Ethnic Diversity Debit Thesis finds application in ethnic fractionalization and religion diversity measures. Lastly, the significant roles of some conditioning variables like GDP per capita, infrastructure, institutional quality, legal origins and latitude are also empirically validated. On policy ground; we suggest, applaud and welcome any private sector-led reform which could help strengthening healthy competition between/among the ethnically polarized groups within the African society.

Keywords: Financial development; Ethnic diversity; Panel data estimators; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: C1 G1 O2 Z1 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10644-019-09245-9

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