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What Drives and Limits Financial Deepening Dynamics? Fresh Empirical-based Policy Lessons for African Sub-Regions

Christian Nguena () and Tsafack Nanfosso Roger ()
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Tsafack Nanfosso Roger: Economic Policy Management Program

No 13_003, AAYE Policy Research Working Paper Series from Association of African Young Economists

Abstract: By using fresh macroeconomic data and several empirical approaches, this paper provides new evidence about the leading macroeconomic determinants and dynamics of financial deepening in the CEMAC sub-region. For this purpose, we have undertaken consecutively a theoretical model building, an explanatory analysis and an empirical estimation of a microfounded model. Practically, it consisted to use several complementary econometrical techniques - both static and dynamic panel data econometrics accounting for endogeneity, instrumental variables and principle components analysis- to better isolate and identify the determinants of financial deepening. Our main results, which are robust to multiple estimation approach and consistent with prediction of the Neo Keynesian economics, has led to the following global recommendations: firstly, the CEMAC sub-region authorities should implement expansionary policies of GDP growth rate, population density, savings rate and exchange rate. Secondly, they should review their policy of trade liberalization since it appears to be negatively related to financial deepening. Concerning the dynamics aspect, a convergent dynamics and the feasibility of common monetary policy targeting depth in CEMAC sub-region have been highlighted. This paper is original and actual since it highlighted the leading determinants of financial deepening and thus better financial policy recommendations in a context of a less developed financial system and wrong performance in terms of shared prosperity and inclusive economic growth.

Keywords: Financial deepening; Financial policy; Panel data econometrics; CEMAC; Principal component analysis; Economic growth (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-04, Revised 2013-11
New Economics Papers: this item is included in nep-mac
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