Does personal freedom matter for financial development in Africa?

Abstract

t has repeatedly been claimed that institutions play an important, and decisive role in economic development. Many studies have analyzed the effect of formal institutions 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 nega tively 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 pre-requisite for African governments to regularly evaluate policies that promote financial sector development, particularly economic freedom and government expenditures