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Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries

Clement Olaniyi and Sunday Idowu Oladeji ()
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Sunday Idowu Oladeji: Obafemi Awolowo University

Economic Change and Restructuring, 2021, vol. 54, issue 1, No 2, 43-74

Abstract: Abstract This study examines the moderating effect of institutional quality on the finance–growth nexus in the West African region via dynamic panel generalized method of moments. The findings reveal that the linear financial development has a separate positive influence on growth, while the interaction between financial development and institutional quality has a negative effect on growth. It implies that institutional quality constitutes a drag that diminishes and leaks out the growth benefits of financial development in West Africa. The threshold level of institutional quality beyond which financial development accelerates economic growth in the region is found to be 4.77 on the ordinal scale of 10 points. It is, however, evident that most of the countries in West Africa operate below the threshold. Hence, it is concluded that the institutional framework weakens the impact of finance on growth in the subregion of sub-Saharan Africa.

Keywords: Financial development; Institutional quality; Economic growth; GMM; Threshold; West Africa (search for similar items in EconPapers)
JEL-codes: D53 E02 E44 N27 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10644-020-09275-8

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