Harnessing the synergies of independent central banks and human capital for enhanced financial sector development in Africa

Abstract

Using panel data from 2004 to 2012, we employ a two-step system GMM estimation technique, with robust standard errors, collapsed instruments and illus-trate marginal effects of central bank independence on financial development in Africa. We also examine the moderating roles of human capital, proxied by literacy rates on the CBI-financial development nexus. We find that, in countries with higher literacy rates/human capital, the positive impact of dejure CBI on financial development is enhanced. Higher literacy rates however, worsen the negative impact of de facto CBO on financial devel-opment. Independent central banks can be made more effective in achieving financial development through governments improving literacy rates. The study is the first to empirically examine the impact of central bank independence on financial development using both dejure and de facto CBI measures and literacy rates in explaining this relationship

Keywords:

• Central Bank Independence
• Financial Development
• Literacy Rates
• Africa
• Emerging Markets
• Developing Countries

Disclosure statement

The authors do not have any known competing interests.

Data Availability Statement

The data that support the findings of this study are openly available in:

1. World Bank (2017). The World Development Indicators, at https://datacatalog.worldbank.org/dataset/world-development-indicators 2. Freedom House (2017). Freedom in the World, at https://freedomhouse.org/report-types/freedom-world 3. Garriga (2016). CBI Data, https://sites.google.com/site/carogarriga/cbi-data-

Additional information

Funding

The authors received no direct funding for this research.