Does financial openness matter for economic transformation in sub-Saharan Africa?

Valentine Soumtang Bime (), Dieudonné Mignamissi () and Agathe Cassandra Koumis Ngagni ()
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Valentine Soumtang Bime: FSEG, University of Yaoundé II-Soa
Dieudonné Mignamissi: FSEG, University of Yaoundé II-Soa
Agathe Cassandra Koumis Ngagni: FSEGA, University of Douala

Economic Change and Restructuring, 2024, vol. 57, issue 2, No 2, 49 pages

Abstract: Abstract There is inadequate knowledge about the relationship between financial openness and economic transformation, particularly in the African context. This lack of knowledge fuels the passion for research, especially with the emergence of new refined indicators of both financial openness and economic transformation. The objective of this paper, therefore, is to assess the impact of financial openness on the economic transformation process using as sample sub-Saharan African (SSA) countries, with study period spanning from 1995 to 2020. To do so, we use the economic complexity index as an indicator of economic transformation, and the KAOPEN index of Chinn and Ito (2006) to capture financial openness. Based on the Instrumental Variables Two-Stage Least Squares (IV-2SLS) technique, we obtain the following results: Firstly, financial openness is a powerful driver of economic transformation in SSA; secondly, our results remain stable following several sensitivity tests related to economic digitization, financial development, types of natural resources, quality of institutions, historical, cultural, and geographic factors; and finally, our results are robust to the use of alternative measures of financial openness and economic transformation, but also to changes in instrumentation and estimation technique. Consistent with our result, we suggest that policymakers should boost the attractiveness for foreign direct and portfolio investments while maintaining fundamental balances.

Keywords: Economic transformation; Financial openness; Economic complexity; KAOPEN index; SSA (search for similar items in EconPapers)
JEL-codes: F02 G10 O14 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10644-024-09578-0

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