Linkages between Financial Factors and Financial Development: A Panel Data Approach for Comesa Region
- October 25, 2019
- Posted by: RSIS
- Categories: Accounting, IJRISS
International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue X, October 2019 | ISSN 2454–6186
Stephen Angwenyi Nyamweya1, Josephat Cheboi2, David Kosgei3
1,2,3Department of Accounting and Finance, Moi University, Kenya
Abstract: – The concept of financial development has been a topical issue of research among scholars and policymakers in developing and developed countries in the world because it affects economic growth. However, there has been no consensus on the relationship between economic growth and financial development. Therefore this paper sought to determine the linkage between financial factors and financial development in 19 COMESA Countries. The specific objectives were to establish the effect of international remittances, financial access, inflation and foreign direct investment on financial development in COMESA Countries. The paper was guided by the finance-growth nexus theory. Data was collected from the IMF and World Bank database for analysis for the period. Fixed effect regression was used as established by use of the General Method of Moments. The results indicated that financial access, foreign direct investment and GDP had a significant effect on financial development in COMESA countries (p-values < 0.05). Therefore, results are expected to provide a basis for policy reference and also stimulate debate on financial development in developing countries under regional integration. The study is expected to generate new knowledge by indicating the relationship between financial factors, economic growth, and financial development. In particular, each COMESA Country should streamline policies aimed at encouraging FDI inflows, increasing economic growth, as well as designing Diaspora policies to encourage foreign remittances and foster financial development.
I. BACKGROUND OF THE STUDY
Financial development has attracted a lot of debate among researchers and scholars. Extant literature available has defined financial development as the improvements in the quantity, quality, and efficiency of financial intermediary services (Akinbuade and Kinfick, 2014; Abu-Bada and Abu-Qarn 2006). In most developing countries, including SSA, the financial services sector is underdeveloped to play its role of intermediation and thus quest to bridge the gap between demand and supply of credit (Wolf, 2003). The financial services sector act as an intermediary between borrowers and savers in emerging economies of the world. The Government needs the financial sector to supplement any budget deficits that arise in any financial year (Adams et al., 2018). Despite the importance of financial sector development, Sub-Saharan Africa is relatively less underdeveloped and diversified as compared to other regions of the World.
