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Title: African Emerging Economies’ Nonlinear Financial-Growth Nexus: The Case of a Macroprudential Policy Regime
Abstract: In a panel of 10 African emerging countries from 1983 to 2020, where there had been a prudential regime from 2000 to 2020 and a non-prudential regime from 1983 to 1999, a panel data analysis of nonlinear financial growth dynamics in a macroprudential policy regime was conducted. The panel smooth transition regression (PSTR) model was used to examine the applicability of the hypothesized U-shape hypothesis in the prudential policy regime as well as the threshold level at which excessive finance boosts growth. The PSTR model was chosen because it can deal with endogeneity and heterogeneity issues in a nonlinear framework. The findings show that there is a nonlinear relationship between financial development and economic growth, with a minimum level of financial development of 60.5% of GDP being the threshold above which financial development boosts growth in emerging African nations. The discovered U-curve hypothesis was refuted by the results, which supported a U-shaped relationship. The main policy recommendation is that the financial sector should be given sufficient attention and recognition, for example by enacting suitable financial reforms, creating a suitable investment portfolio, and limiting spending on technological investment in Africa’s developing nations to below the threshold. Again, when implementing macroprudential policies at a low level of the financial system, caution is required.
Keywords: African emerging markets; economic growth; financial development; macroprudential policy; PSTR
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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