- Title
- Financial development in the SADC: growth and cross-country spatial spill-over effects
- Creator
- Bara, Alex
- Subject
- Economic development -- South Africa Economic assistance -- South Africa
- Date Issued
- 2017
- Date
- 2017
- Type
- Thesis
- Type
- Doctoral
- Type
- PhD
- Identifier
- http://hdl.handle.net/10948/14950
- Identifier
- vital:27943
- Description
- This study was prompted by the prevailing imbalance in financial development across SADC countries, which is not consistent with the linkages and interconnectedness of financial systems of these economies. South Africa is the most financially developed country in Africa, yet it is surrounded by economies with relatively small and underdeveloped financial systems, contrary to the spatial proximity theory in finance. The study performed a number of empirical estimations in respect of the spatiality of financial development, motivated by the intention to assess the growth and spatial spill-over effects of financial development in SADC. The study provides new information in spatial spill-over dynamics of financial development, which could inform policy development particularly in view of the on-going financial integration in the SADC region. The study also contributes to regional economic development in SADC from a finance perspective. The analysis was performed using annual data for all the 15 SADC countries, spanning for the period 1985 to 2014. Using the Generalised Method of Moments approach, the study finds that financial development does not support economic growth in SADC. Financial reforms were found to be insufficient to drive growth. A bi-directional causality between financial development and economic growth was established with causality being strong when flowing from economic growth to financial development. The extended Aghion, Howitt and Mayer-Foulkes Model, estimated by an Autoregressive Distributive Lag approach, established that financial innovation has a positive relation to economic growth in SADC, particularly in the long-run. There is no causality, in either direction, between financial innovation and economic growth in both the short and long-run. The Spatial Durbin Model reveals a presence of positive spatial effects on financial development in the region and that proximity to South Africa yields consistent effects of spatial externality in money markets and inconsistent spatial externality in credit markets. The monetary union has no influence on spatial dynamics of financial development in SADC. The generalised impulse response analysis of a Bayesian VAR model indicate that shocks in South Africa’s financial sector has positive, but constrained and in some cases weak, financial spill-over effects on both economic growth and financial development of other SADC countries. The study established, using the Herfindahl-Hirschman Index, a high level of financial market concentration for SADC, cantered in South Africa, and a fair distribution when South Africa is excluded. Dynamic panel models established that financial market concentration reduces financial development in SADC. South Africa’s financial development has mixed and opposing effects on financial market concentration in SADC. The findings also show that international finance has a positive, but currently weak, effect on financial development in SADC and countries with international financial centres contribute more to financial development than countries without. Proximity to South Africa creates huge potential for increasing financial development in SADC through spill-overs and more benefits of spatial proximity are realised in the long-run. Given the strong spatial effects in money markets and significant positive spill-overs in credit markets in the region, countries closer to South Africa need to link their money and credit markets to the South African markets and possibly benchmark to the Rand so as to benefit from proximity and spill-overs from South Africa. The results also suggest that SADC countries need to capitalise on their proximity to South Africa to enhance financial development by promoting economic growth, financial innovation, opening and diversification of financial sectors and linkages to global financial markets. Financial innovation supports financial inclusion, cross-border flows of funds, remittances and trade in SADC and has effects of enabling integration with developed markets and facilitating economic activity. Opening financial sectors enhances diversification of financial systems, increases competition and efficiency. To enhance access to international finance, the study suggests the creation of information centres in South Africa with SADC countries as economic hinterlands, commercialisation of solutions to SADC countries financial challenges, financial integration and support for deepening of financial systems in these countries. Strengthening economic growth could also increase financial development given a strong demand-following causality. The major challenge, however, is that some of the SADC countries have underdeveloped and highly concentrated financial systems characterised by high financial intermediation inefficiencies, high financial exclusion, weak financial infrastructure and regulations. Consequently, countries suffer financial leakages, are not receptive to spatial externalities and financial spill-overs from South Africa and often generate financial spillbacks to South Africa. SADC countries should, however, first address the issue of financial exclusion, financial infrastructure and regulation as well as efficiency in the financial markets. The SADC countries need mechanisms to attract financial development from South Africa to benefit from positive spill-overs and instruments to deal with negative externalities of financial shocks in South Africa. Overall, there is potential for increased financial development in SADC by consolidating absorption of positive financial spill-overs and externalities of proximity to South Africa -particularly in the medium to long term. Heterogeneity among SADC countries and the varying levels of financial development, however, dictates that the region should promote financial integration in order to enhance development of underdeveloped financial systems through spatial spill-over gains.
- Format
- xv, 271 leaves
- Format
- Publisher
- Nelson Mandela Metropolitan University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- Nelson Mandela Metropolitan University
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