https://orcid.org/0009-0001-9383-3874
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Abstract
It has repeatedly been claimed that institutions play an important, and decisive role in economic development. Many studies have analyzed the effect of formal institution on financial development while informal institutions have received less attention. With this paper, we contribute to the effect of personal freedom as a measure for informal institutions on financial development using annual data from 40 African countries spanning 2000 to 2020. We employ the novel fixed effect panel quantile regression technique. The study documents that, in the upper quantile, personal freedom negatively and significantly affects financial development. This finding explicates that, a low level of personal freedom restricts human choices, limiting personal participation in the development of the financial system in Africa. Thus, personal freedom is important for Africa’s financial development. The study recommends that policymakers rally resolute support to defend and protect human rights and personal liberties that encourage human choices. Additionally, the findings intuitively reinforce the prerequisite for African governments regularly evaluate policies that promote financial sector development, particularly economic freedom and government expenditures.
Impact statement
This research offers a significant contribution to the understanding of the relationship between informal institutions, specifically personal freedom, and financial development in Africa. By employing data from 40 African countries over two decades, and utilising fixed-effect panel quantile regression, the study provides evidence of how personal freedom significantly influences financial development in the upper quantiles. The findings underscore the need of human rights and personal liberties in facilitating financial sector growth, suggesting that enhanced personal freedoms foster greater individual participation in financial markets, which is vital for robust financial sector development.
The findings underscore the need for policymakers to prioritising the protection and enhancement of personal freedoms as a strategy for financial sector development in Africa. This research also emphasis the necessity for continuous policy evaluation to provide a strategic roadmap for enhancing Africa’s financial infrastructure. Consequently, the study does not only advance the academic discourse on the importance of informal institutions in financial development in Africa but also, provides actionable recommendations for governance and policy in African countries, potentially stimulating financial growth and stability through the reinforcement of personal freedom.
Reviewing Editor:
Author contributions
Benard Ohene Kwatia: Conceptualization, Validation, Formal Analysis, Data curation, Writing-original draft, Writing-review & editing. Godfred Amewu: Validation, Formal Analysis, Data curation, Writing-review & editing, supervisionMohammed Armah: Methodology, Validation, Formal Analysis, Data curation, Writing-review & editing.
Disclosure statement
The authors declared that there were no conflicts of interest.
Data availability statement
The data used in the study will be made available on request.
Additional information
Funding
Notes on contributors
Benard Ohene Kwatia
Benard Ohene Kwatia is a doctoral research candidate with interests in religiosity, freedom, equality, financial development, institutions and financial econometrics. He holds MBA in Finance and a Fellow of the Association of Chartered Certified Accountants – UK, a member of the Institute of Chartered Accountant and the Institute of Internal Auditors – Ghana.
Godfred Amewu
Godfred Amewu is a Senior Lecturer in finance at the University of Ghana Business School. He is currently leading the efforts in the development of impact investing as an asset class in Africa. His research interests are in corporate finance, corporate governance, risk management, capital market, and corporate social investments.
Mohammed Armah
Mohammed Armah is a doctoral research student at the Ghana Institute of Management and Public Administration (GIMPA). He holds MPhil and MBA in Finance from Kwame Nkrumah University of Science and Technology and Coventry University College. His research interests are in the areas of financial market integration, monetary policy, and financial economies.