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

Figures & data

Table 1. Financial Development in Africa, Developing and Developed Countries

	Region	2012	2014	2016	2017	2018
Private Credit (% of GDP)	Africa	48.5	43.8	44.2	50.3	51.5
Private Credit (% of GDP)	Developing	46.2	50.2	48.6	48.8	54.1
Private Credit (% of GDP))	Developed	140.1	141.9	144.6	147.4	141.8
ATMs (per 100,000 adults)	Africa	4.3	5.4	6.3	5.7	6.5
ATMs (per 100,000 adults)	Developing	35.1	40.2	40.6	41.0	41.4
ATMs (per 100,000 adults)	Developed	83.6	76.7	77.8	77.8	70.8

Figure 1. Trend in Central Bank Independence: 1970-2012

Table 2. Adult literacy age 15 years and above

Region	2005	2008	2011	2015	2016	2017	2018
Africa	59.5	58.0	61.1	64.0	64.7	65.0	65.5
World	82.4	83.4	84.3	85.5	85.8	86.1	86.3
Developing	90.2	91.10	92.0	92.9	93.4	93.5	93.7

Table 3. Effect of CBI and Literacy Rate on Financial Development

	AFRICA				DEVELOPING
	PRIV.CRT		STOCK.MKCAP		PRIV.CRT		STOCK.MKCAP
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Priv.Crt t-1	0.327***	0.312***			0.346***	0.375***
	(0.005)	(0.005)			(0.003)	(0.003)
STOCKMKTt-1			0.221***	0.123***			0.147***	0.158***
			(0.003)	(0.004)			(0.005)	(0.003)
DejureCBI	0.211	0.176	0.222	0.237	0.168***	0.145***	0.154***	0.119***
	(0.189)	(0.148)	(0.211)	(0.197)	(0.012)	(0.013)	(0.015)	(0.011)
LitRate	0.116*	0.103*	0.151*	0.118***	0.211**	0.224**	0.253**	0.276**
	(0.067)	(0.048)	(0.059)	(0.008)	(0.028)	(0.024)	(0.033)	(0.031)
DejureCBI*LitRate		0.188**		0.192**		0.102***		0.114***
		(0.055)		(0.051)		(0.009)		(0.008)
PolInst	0.176**	0.131**	0.065	0.049	0.125*	0.119**	0.108	0.189
	(0.031)	(0.048)	(0.055)	(0.015)	(0.078)	(0.088)	(0.164)	(0.171)
DEBTG	−0.012*	−0.011	−0.077**	−0.068**	−0.119**	−0.202*	−0.146**	−0.151**
	(0.001)	(0.008)	(0.015)	(0.018)	(0.077)	(0.121)	(0.079)	(0.059)
GDPR	0.022*	0.025*	0.089*	0.076**	0.223***	0.254***	0.197**	0.186**
	(0.011)	(0.012)	(0.051)	(0.022)	(0.005)	(0.003)	(0.045)	(0.065)
TRD.OPEN	0.055*	0.045**	0.067**	0.034*	0.111**	0.108*	0.121**	0.145*
	(0.033)	(0.019)	(0.021)	(0.018)	(0.068)	(0.079)	(0.054)	(0.097)
LGDPC	0.134	0.145	0.157	0.187	0.232**	0.243**	0.358**	0.465**
	(0.199)	(0.115)	(0.165)	(0.176)	(0.097)	(0.087)	(0.113)	(0.198)
FEXRT	0.113	0.134**	0.167	0.116**	0.042	0.443**	0.456*	0.521**
	(0.188)	(0.076)	(0.178)	(0.045)	(0.111)	(0.119)	(0.198)	(0.188)
IT	0.101*	0.107*	0.122*	0.136*	0.248**	0.301**	0.332**	0.277**
	(0.055)	(0.058)	(0.098)	(0.087)	(0.043)	(0.089)	(0.085)	(0.076)
LDS	−0.041*	−0.012**	−0.031	−0.029**	−0.132**	−0.115**	−0.097**	−0.088*
	(0.021)	(0.004)	(0.025)	(0.011)	(0.054)	(0.065)	(0.033)	(0.044)
CBASSETS	0.054	0.025	0.057	0.076	0.195**	0.185**	0.109*	0.122**
	(0.122)	(0.019)	(0.054)	(0.062)	(0.063)	(0.059)	(0.071)	(0.042)
FINOPEN	0.125	0.121*	0.154	0.178*	0.245*	0.269**	0.231	0.223*
	(0.188)	(0.085)	(0.113)	(0.076)	(0.098)	(0.075)	(0.186)	(0.112)
		0.364*		0.429*		0.247***		0.233***
		(0.106)		(0.121)		(0.035)		(0.046)
Observations	945	945	458	469	1,658	1,662	1204	1204
No. of Countries	48	48	18	18	90	90	63	63
No. of Instruments	26	25	12	12	37	37	32	32
AR (1)	0.004	0.004	0.006	0.006	0.001	0.004	0.001	0.004
AR (2)	0.221	0.224	0.231	0.226	0.245	0.238	0.242	0.248
Hansen test	0.116	0.115	0.118	0.117	0.224	0.226	0.228	0.231

Robust standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1

Table 4. Effect of CBI and Financial Literacy on Financial Development

	AFRICA				DEVELOPING
	PRIV.CRT		STOCK.MKCAP		PRIV.CRT		STOCK.MKCAP
	(9)	(10)	(11)	(12)	(15)	(16)	(17)	(18)
Priv.Crtt-1	0.521***	0.504***			0.613***	0.622***
	(0.001)	(0.001)			(0.001)	(0.001)
STOCKMKTt-1			0.432***	0.418***			0.522***	0.536***
			(0.002)	(0.002)			(0.001)	(0.001)
CBGTO	−0.158*	−0.153*	−0.188	−0.108	−0.183*	−0.191*	−0.202*	−0.211*
	(0.071)	(0.152)	(0.021)	(0.006)	(0.071)	(0.032)	(0.005)	(0.005)
LitRate	0.121*	0.115	0.171	0.112*	0.244*	0.181*	0.222*	0.169*
	(0.061)	(0.121)	(0.152)	(0.065)	(0.082)	(0.086)	(0.085)	(0.076)
CBGTO*LitRate		−0.075*		−0.096**		−0.102*		−0.108*
		(0.021)		(0.017)		(0.051)		(0.053)
PolInst	0.212**	0.148**	0.133**	0.154**	0.415*	0.048*	0.152	−0.141
	(0.055)	(0.053)	(0.063)	(0.061)	(0.136)	(0.056)	(0.122)	(0.076)
DEBTG	−0.081**	−0.085	−0.165**	−0.142**	−0.362**	−0.357	−0.153	−0.219*
	(0.043)	(0.092)	(0.056)	(0.124)	(0.097)	(0.226)	(0.115)	(0.124)
GDPR	0.101**	0.105**	0.201**	0.206**	0.226**	0.269**	0.312	0.365**
	(0.036)	(0.034)	(0.068)	(0.052)	(0.098)	(0.085)	(1.021)	(0.081)
TRD.OPEN	−0.069*	−0.062	−0.106	−0.081	−0.042*	−0.055	−0.071	−0.062
	(0.031)	(0.051)	(0.091)	(0.112)	(0.019)	(0.063)	(0.123)	(0.151)
LGDPC	0.041***	0.047	0.038	0.052**	0.243**	0265	0.324	0.326*
	(0.003)	(0.012)	(0.011)	(0.011)	(0.078)	(0.194)	(0.225)	(0.101)
FEXRT	0.121*	0.126**	0.178*	0.191	0.224	0.267*	−0.286	0.301
	(0.081)	(0.062)	(0.086)	(0.201)	(0.211)	(0.091)	(0.183)	(0.405)
IT	−0.052*	−0.047	0.053**	0.059	−0.102*	−0.109	−0.092	0.095**
	(0.019)	(0.121)	(0.017)	(0.124)	(0.058)	(0.154)	(0.143)	(0.025)
LDS	−0.105**	−0.113*	−0.108	−0.112	−0.136*	−0.125	−0.121*	−0.123
	(0.049)	(0.084)	(0.119)	(0.135)	(0.065)	(0.108)	(0.052)	(0.153)
CBASSETS	0.091**	0.065**	0.089	0.032	0.315	0.362	0.401	0.398
	(0.028)	(0.021)	(0.162)	(0.181)	(0.211)	(0.315)	(0.224)	(0.151)
FINOPEN	0.122***	0.189**	0.176	0.137**	0.213**	0.222	0.269*	0.248
	(0.001)	(0.042)	(0.216)	(0.052)	(0.042)	(0.318)	(0.098)	(0.116)
		−0.228**		−0.204**		−0.293***		−0.319**
		(0.061)		(0.068)		(0.091)		(0.076)
Observations	906	906	465	465	1,021	1,021	989	988
No. of Countries	48	48	18	18	90	90	63	63
No. of Instruments	25	24	11	11	35	35	30	30
AR (1)	0.015	0.016	0.021	0.018	0.032	0.028	0.041	0.035
AR (2)	0.126	0.129	0.187	0.119	0.142	0.131	0.149	0.151
Hansen test	0.167	0.189	0.198	0.148	0.202	0.315	0318	0.325

Appendix I: Descriptive Statistics

Variable		Mean	Median	Max	Min.	SD.	Obs.
PRIV.CRT	Africa	19.892	14.736	160.125	0.491	19.347	954
	Other Developing	29.219	20.193	115.783	0.521	80.527	1043
STOCKMKT	Africa	36.043	13.785	96.939	0.009	76.587	405
	Other Developing	32.410	15.922	75.380	0.032	60.713	1011
CBI	Africa	0.501	0.501	0.866	0.137	0.197	979
	Other Developing	0.491	0.482	0.899	0.134	0.198	1025
LiRate	Africa	0.551	0.572	0.61	0.324	0.381	924
	Other Developing	0.612	0.643	0.72	0.441	0.472	1039
PolInst.	Africa	2.178	2	6	0	1.451	937
	Other Developing	2.757	3	6	0	1.604	1006
FEXRT	Africa	0.311	0.302	1	0	0.454	543
	Other Developing	0.632	0.752	1	0	0.524	1045
GDPR	Africa	4.084	14.736	149.73	-62.08	7.682	903
	Other Developing	29.219	20.193	115.783	0.491	80.527	1018
Per Capita GDP	Africa	1362.7	1568.5	14749.2	113.7	2129.5	912
	Other Developing	2045.7	2254.3	15912.5	111.7	2179.6	937
TRD.OPEN	Africa	43.58	45.2	92.9	22.5	16.5	1959
	Other Developing	33.82	54.23	85.27	21.6	36.7	1040
IT	Africa	0.019	0.018	1	0	0.0967	788
	Other Developing	0.072	0.065	1	0	0.0987	1029
FINOPEN	Africa	-0.25	-.0.15	2.37	-1.90	1.45	886
	Other Developing	-0.23	-1.19	2.37	-1.58	1.61	1046
LDS	Africa	9.28	10.25	15.23	6.87	5.63	953
	Other Developing	7.75	9.78	12.54	3.48	5.26	1023
CBASSETS	Africa	2.21	2.35	3.56	1.25	1.451	896
	Other Developing	5.21	5.36	4.52	1.75	1.604	1051

$PRIV.CR{T}_{it}$ denotes the ratio of domestic private credit to GDP. $STOCKMK{T}_{it}$ denotes the ratio of stock market capitalisation to GDP.$.\hspace{0.17em}CB{I}_{it}$ is the central bank independence measured by the CWN index, $GDP{R}_{it\hspace{0.17em}}$ is the real GDP annual growth rate, $LGDP{C}_{it}$ is log of real GDP per capita, $InstQUa{l}_{it}$ is the rescaled political rights score, from 0-6 where 0 denotes least respect for political rights and 6 highest respect for political rights, and $TRD.OPE{N}_{it}$ is the trade openness measured as the ratio of sum of exports and imports to GDP. $FEXR{T}_{it}$ is a dummy variable for the exchange rate regime measured as 1 for fixed exchange rate regimes and 0 otherwise.$\hspace{0.17em}I{T}_{it}$ denotes inflation targeting regime and is a dummy measured as 1 for inflation targeting regimes and 0 otherwise.$\hspace{0.17em}LitRat{e}_{it}$ is the proportion of adults aged 15 and above who can read and write; and $DEBT{G}_{it}$ is the debt to GDP ratio.$\hspace{0.17em}LD{S}_{it}\hspace{0.17em}$is the difference between lending rate and deposit rate; $CBASSET{S}_{it}$ is the ratio of central bank assets to GDP and $FINOPE{N}_{it}$ is Chinn--Ito binary index for capital openness. All regressions include both country-specific effects and time-period effects.

Appendix II: Correlation Matrix

Variable	PRIV. CRT	STOCKMKT	CBI	LitRate	PolInst	GDPR	LGDPC	FEXRT	TRADEOPEN	FINOPEN	LDS	IT	CBASSETS
PRIV. CRT	1.000
STOCKMKT	0.432	1.000
CBI	0.319	0.554	1.000
LitRate	0.452	0.321	0.311	1.000
PolInst	0.561	0.553	0.119	0.214	1.000
GDPR	0.461	0.628	0.325	0.315	0.218	1.000
LGDPC	0.518	0.521	0.412	0.115	0.365	0.321	1.000
FEXRT	0.433	0.425	0.215	0.235	0.116	0.358	0.125	1.000
TRADEOPEN	0.612	0.325	0.223	0.114	0.174	0.125	0.365	0.362	1.000
FINOPEN	0.626	0.352	0.214	0.254	0.163	0.335	0.456	0.442	0.254	1.000
LDS	-0.511	-0.418	0.325	-0.128	-0.124	-0.113	-0.432	-0.251	-0.298	-0.268	1.000
IT	0.221	0.325	0.436	0.112	0.356	0.245	0.447	0.233	0.178	0.111	0.227	1.000
CBASSETS	0.400	0.321	0.113	0.118	0.139	0.125	0.174	0.356	0.124	0.485	0.421	0.268	1.000

$PRIV.CR{T}_{it}$ denotes the ratio of domestic private credit to GDP. $STOCKMK{T}_{it}$ denotes the ratio of stock market capitalisation to GDP.$.\hspace{0.17em}CB{I}_{it}$ is the central bank independence measured by the CWN index, $GDP{R}_{it\hspace{0.17em}}$ is the real GDP annual growth rate, $LGDP{C}_{it}$ is log of real GDP per capita, $InstQUa{l}_{it}$ is the rescaled political rights score, from 0-6 where 0 denotes least respect for political rights and 6 highest respect for political rights, and $TRD.OPE{N}_{it}$ is the trade openness measured as the ratio of sum of exports and imports to GDP. $FEXR{T}_{it}$ is a dummy variable for the exchange rate regime measured as 1 for fixed exchange rate regimes and 0 otherwise.$\hspace{0.17em}I{T}_{it}$ denotes inflation targeting regime and is a dummy measured as 1 for inflation targeting regimes and 0 otherwise.$\hspace{0.17em}LitRat{e}_{it}$ is the proportion of adults aged 15 and above who can read and write; and $DEBT{G}_{it}$ is the debt to GDP ratio.$\hspace{0.17em}LD{S}_{it}\hspace{0.17em}$is the difference between lending rate and deposit rate; $CBASSET{S}_{it}$ is the ratio of central bank assets to GDP and $FINOPE{N}_{it}$ is Chinn--Ito binary index for capital openness. All regressions include both country-specific effects and time-period effects.

Appendix III: Developing Countries Sample

	PRIV.CRT	STOCKMKT
	2SLS	2SLS
	(19)	(20)	(21)	(22)
PRIV.CRTt-1	0.218***	0.227***
	(0.006)	(0.003)
STOCKMKTt-1			0.105***	0.116***
			(0.003)	(0.0032)
CBI	0.098	0.086*	0.058	0.051*
	(0.112)	(0.042)	(0.063)	(0.032)
LitRate	0.013***	0.017*	0.028**	0.031**
	(0.001)	(0.008)	(0.012)	(0.012)
CBI*LitRate		0.077**		0.058**
		(0.021)		(0.019)
PolInst	0.228**	0.158**	0.102**	0.115**
	(0.072)	(0.059)	(0.031)	(0.049)
GDPR	0.054**	0.091**	0.047**	0.053**
	(0.019)	(0.031)	(0.019)	(0.021)
DEBTG	0.018**	0.015	0.015***	0.026
	(0.006)	(0.012)	(0.001)	(0.031)
TRD.OPEN	0.052**	0.035	0.048**	0.055
	(0.018)	(0.052)	(0.014)	(0.042)
FEXRT	0.025**	-0.027**	-0.047*	-0.063*
	(0.012)	(0.012)	(0.024)	(0.031)
IT	0.113***	0.142**	0.122**	0.128
	(0.007)	(0.053)	(0.048)	(0.176)
LGDPC	0.047**	0.032**	0.036**	0.048**
	(0.019)	(0.011)	(0.012)	(0.013)
LDS	-0.026*	-0.035**	-0.041***	-0.046**
	(0.014)	(0.011)	(0.005)	(0.011)
CBASSETS	0.041***	0.045***	-0.077	0.053
	(0.002)	(0.001)	(0.181)	(0.113)
FINOPEN	0.062	0.048**	0.063***	0.058**
	(0.226)	(0.015)	(0.009)	(0.018)
$\mathrm{T}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{C}\mathrm{B}\mathrm{I}\mathrm{E}\mathrm{f}\mathrm{f}\mathrm{e}\mathrm{c}\mathrm{t}$		0.163**		0.109**
$({\beta }_2$ + ${\beta }_4$)		(0.052)		(0.038)
Observations	631	632	547	547
No of Countries	138	138	81	81
R^2	0.523	0.554	0.528	0.576
Wald Chi^2	46.42**	45.37***	49.39**	46.46***
Woolridge’s OIR	0.511	0.508	0.497	0.593
p-value	(0.334)	(0.322)	(0.285)	(0.311)
Woolridge Rob.	8.211**	8.123**	8.578**	8.222**
Robust Regression	5.421**	5.214**	5.491**	5.178**

Standard Errors are in parenthesis: *** p<0.01, ** p<0.05, * p<0.1

$PRIV.CR{E}_{it}$ denotes the ratio of domestic private credit to GDP. $STOCKMK{T}_{it}$ denotes the ratio of stock market capitalisation to GDP.$.CB{I}_{it}$ is the central bank independence measured by the CWN index, $GDP{R}_{it}$ is the real GDP annual growth rate, $LGDP{C}_{it}$ is log of real GDP per capita, $InstQUa{l}_{it}$ is the rescaled political rights score, from 0-6 where 0 denotes least respect for political rights and 6 highest respect for political rights, and $TRD.OPE{N}_{it}$ is the trade openness measured as the ratio of sum of exports and imports to GDP. $FEXR{T}_{it}$ is a dummy variable for the exchange rate regime measured as 1 for fixed exchange rate regimes and 0 otherwise.$I{T}_{it}$ denotes inflation targeting regime and is a dummy measured as 1 for inflation targeting regimes and 0 otherwise.$LitRat{e}_{it}$ is the proportion of adults aged 15 and above who can read and write; and $DEBT{G}_{it}$ is the debt to GDP ratio.$LD{S}_{it}$is the difference between lending rate and deposit rate; $CBASSET{S}_{it}$ is the ratio of central bank assets to GDP and $FINOPE{N}_{it}$ is Chinn--Ito binary index for capital openness. All regressions include both country-specific effects and time-period effects.

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-