Threshold Effect of Financial Development on Sectoral Efficiency in Africa

Barbara Mensah (), George Tweneboah, John Gatsi and Simplice Asongu
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Barbara Mensah: Accra, Ghana
George Tweneboah: Cape Coast, Ghana
John Gatsi: Cape Coast, Ghana

No 26/066, Working Papers of the African Governance and Development Institute. from African Governance and Development Institute.

Abstract: This paper examines the threshold effect of financial development on sectoral efficiency using 42 African countries from 2000 to 2020. The paper employs the panel threshold regression estimation. To measure financial development, the paper used domestic credit to private sector and bank deposits to GDP. The findings of shows that the effect of financial development on sectoral efficiency depends on the measure of financial development. Domestic credit and bank deposits have a positive linear effect on the efficiency of the manufacturing sector. Domestic credit has a U-shaped relationship with agriculture technical efficiency but its relationship with the service sector is inverted U-shaped. This study makes some significant contributions. Bank deposits drive efficiency but beyond a certain level, the effect is not significant. The study suggests that domestic credits to the private sector beyond 8.0976% are good for agriculture technical efficiency while domestic credit below 11.1906% is needed for service sector efficiency. Also, threshold values below 25.9713% and 14.8981% are recommended to see a significant positive effect of bank deposits on efficiency (agriculture and service sectors respectively). This paper is the first to consider the threshold effect of financial development on sectoral efficiency.

Keywords: Data Envelopment Analysis; Financial Development; Panel Threshold Regression; Sectoral Efficiency and Technical Efficiency (search for similar items in EconPapers)
JEL-codes: C1 F31 F32 F4 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2026-01
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http://www.afridev.org/RePEc/agd/agd-wpaper/66.Thr ... ciency-in-Africa.pdf Revised version, 2026 (application/pdf)

Related works:
Working Paper: Threshold Effect of Financial Development on Sectoral Efficiency in Africa (2026)
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