Understanding the Growth of African Financial Markets
IMF Working Papers, August 1, 2009
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- Understanding the Growth of African Financial Markets
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Bibliographic details
- Authors: Mihasonirina Andrianaivo, Charles Amo Yartey
- Published: August 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873290.001
Summary findings
- The paper examines empirically the determinants of financial market development in Africa with an emphasis on banking systems and stock markets.
- Main determinants of banking sector development in Africa:
- income level
- creditor rights protection
- financial repression
- political risk
- Main determinants of stock market development:
- stock market liquidity
- domestic savings
- banking sector development
- political risk
- Capital account liberalization:
- Liberalizing the capital account promotes financial market development only in countries with high incomes, well- developed institutions, or both.
- Political risk:
- The powerful impacts of political risk on both banking sector and stock market development suggest that resolution of political risk may be important to the development of African financial markets.
Policy implications and recommendations
- Addressing political risk should be a priority to foster development of both banking sectors and stock markets in Africa.
- Strengthening creditor rights protection can support banking sector development.
- Reducing financial repression can facilitate banking sector expansion.
- Enhancing stock market liquidity and promoting domestic savings can accelerate stock market development.
- Consider capital account liberalization conditional on achieving higher income levels and stronger institutional development.