https://orcid.org/0000-0002-1286-0564
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ABSTRACT
The need for higher sectorial output for enhanced structural transformation has long been acknowledged in the literature, with economic integration touted as one of the ways of spurring sectorial value added. However, recent studies have been less informative in examining how integration influences sectorial output, given the narrow focus of trade and financial integration measures. More tellingly, whether countries domestic financial development mediates the impact of integration on sectorial value added is yet to be explored. This study, therefore, re-engages the literature by investigating the integration–sectorial output linkage using comprehensive measures of integration and financial development. By employing data from 28 sub–Saharan African countries from 1985 to 2015, we find that higher economic integration spurs sectorial value added with robust impact in the industrial sector. This effect holds albeit disproportionately when economic integration is disaggregated into its various forms with the effect of trade integration consistently higher relative to financial integration. Further evidence shows that improved financial development significantly increases the output–enhancing effect in the industrial sector with a weak magnifying role in the agricultural and service sectors.
Acknowledgement
We acknowledge the financial support of the University of Economics Ho Chi Minh City, Vietnam towards the conduct of this study. We are also grateful to the anonymous reviewers for their constructive feedback which significantly improved the present paper. The usual disclaimer however applies.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. For recent determinants and state of Africa’s financial system, see Aluko and Ibrahim (Citation2019); Sare et al. (Citation2019) and Ibrahim and Sare (Citation2018).
2. The globalization index is on a 100-point scale measure where higher (lower) value implies more (less) globalization.
3. The list of the countries are in the appendix.
4. This study does not consider the manufacturing sector since its value added are already included in the industrial value added. See Kumi, Ibrahim, and Yeboah (Citation2017) and Alagidede, Ibrahim, and Sare (Citation2020) for detailed description of the composition of the sectoral value added.
5. For detailed explanation of the financial development indicator, see Svirydzenka (Citation2016).
6. The standard finance–growth provide evidence of causal relationships culminating into what is known as the demand–following (economic growth causing changes in financial development), supply–leading (financial development causing changes in economic growth), feedback financial development and economic growth causing changes in each other in bi–directional fashion. For detailed discussion of this, see Opoku, Ibrahim, and Sare (Citation2019).