Impact of Financial Liberalisation on the Financial Development of Eight Countries Member of SADC

Abstract

This study analyses how financial liberalisation affects the financial development in eight countries member of SADC for the year of 1980 to 2012. Financial liberalisation refers to the removal of the intervention a government imposes on key variables like interest rate. Therefore, it refers to the removal of various constraints in the financial sector. We will be examining the impact of some macroeconomic variables on the financial development of eight countries. We then will be using three measures for financial development which are bank credit to the private sector, bank deposits and stock market capitalization. Explanatory variables will be used to determine financial development and estimations are based on random-effect panel regressions. Random effect supposes that the difference across countries impact the level of financial development: for the banking development variable, inflation has a significant and negative impact on credit to private sectors and bank deposits. However, Portfolio investments and remittance have not impacted bank credit to private sector, bank deposit and stock market capitalization. Stock market capitalization appears not to be affected and do not improve by any other variable. Per-capita income has a positive impact on bank deposit, but a negatively impacted by stock market capitalization. The Trade variable is negatively correlated with credit to private sector. Net private investment has a positive impact on financial development through the banking deposits but negatively to the stock market capitalization.