Current account and financial reforms: Evidence from sub‐Saharan Africa

Kelvin Onwuka, Anayochukwu Basil Chukwu and Tobechi Faith Agbanike

International Journal of Finance & Economics, 2021, vol. 26, issue 3, 4303-4314

Abstract: This study investigates the relationship between financial deregulation and current account imbalances in a panel of 14 Sub‐Saharan African countries over the period 1990–2015. While there are plethora of studies linking financial (de)regulation and economic crisis, the relationship between financial deregulation and current account imbalances has received little attention to date in the growth literature. Relying on the Classical‐Keynesian theoretic perspective, the study adopted the fixed‐effects panel least square estimation technique to determine the effects of financial reforms on current account balance. Our results are robust, suggesting a significant but negative relationship between financial reforms and current account balance. The results further suggest that factors that positively affect current account balance include terms of trade, inflation rate, gross domestic savings, per capita income, and net foreign assets. A policy shift towards improving terms of trade, and gross domestic savings, through expansion in aggregate output and devaluation of the domestic currency will increase internal market competitiveness within the region.

Date: 2021
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