Is financial integration a complement or substitute to domestic financial development in a developing country? Evidence from the SACU countries

Aziakpono, Meshach J; Burger, P; Du Plessis, S

Title: Is financial integration a complement or substitute to domestic financial development in a developing country? Evidence from the SACU countries
Creator: Aziakpono, Meshach J
Creator: Burger, P
Creator: Du Plessis, S
Subject: To be catalogued
Date Issued: 2009
Date: 2009
Type: text
Type: article
Identifier: http://hdl.handle.net/10962/469731
Identifier: vital:77289
Identifier: https://hdl.handle.net/10520/EJC21490
Description: Using a multivariate cointegration and error correction modelling framework, with data from the SACU countries, this paper tested two rival theories on the effect of financial integration (FI), that is whether FI is a complement or a substitute to financial development (FD). Financial integration is a complement where it helps to boost domestic FD through greater competitive pressures on financial intermediaries, and encourage international good practices in accounting, financial regulation and supervision. It is a substitute where FI renders the local financial system irrelevant or causes it to deteriorate. Overall, the empirical analysis finds strong evidence of a long-run relationship between FD and FI across the SACU countries. The results show that causality runs in both directions between FD and FI across the SACU countries with the exception of Lesotho where the causality runs mainly from FI to FD. No consistent effect of FI on FD (or the reverse) emerged from the empirical results in this sample. The results were also affected by the measurements used for the capital stock and FD. These results do not support any one-size-fits-all policy approach to stimulating FD or harnessing the benefits of FI, rather, they suggest that country specific aspects of the financial system should be paramount when analysing the impact of FI on FD.
Format: 29 pages
Format: pdf
Language: English
Relation: Studies in Economics and Econometrics
Relation: Aziakpono, M., Burger, P. and Du Plessis, S., 2009. Is financial integration a complement or substitute to domestic financial development in a developing country? Evidence from the SACU countries. Studies in Economics and Econometrics, 33(3), pp.39-67
Relation: Studies in Economics and Econometrics volume 33 number 3 39 67 2009 2693-5198
Rights: Publisher
Rights: Use of this resource is governed by the terms and conditions of the Sabinet Terms and Conditions Statement (https://www.sabinet.co.za/terms-conditions)

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Aziakpono, Meshach Jesse (Prof)

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RU Department of Economics and Economic History

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