Financial globalization and institutions in Africa: the case of foreign direct investment, central bank independence and political institutions
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Date
2020
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Publisher
Journal of Institutional Economics
Abstract
In this paper, we examine the bi-directional relationship between financial globalization (proxied by foreign direct investment (FDI) flows) and economic institutions (proxied by central bank independence
(CBI)) taking into consideration the role of political institutions. We test our argument on a sample of
48 African countries (1970–2012) using a two-step System Generalized Methods of Moments, with collapsed instruments and Windmeijer robust standard errors. Using two proxies for CBI, the study finds
that while legal CBI does not have a significant impact on FDI, high central bank governor turnover
rates have a significantly negative impact on FDI inflows. However, higher levels of political institutions
significantly enhance the impact of legal CBI on FDI inflows, and dampen the impact of high central bank
governor turnover rates on FDI inflows. The study also shows that higher FDI inflows have a significantly
positive impact on both legal and de facto CBI. This impact is accelerated in countries characterized by
higher levels of political institutions.
Description
Research Article
Keywords
Africa, central bank independence, financial globalization, foreign direct investment, political institutions
Citation
Agoba AM, Agbloyor E, Gyeke-Dako AA, Acquah Mac-C (2020). Financial globalization and institutions in Africa: the case of foreign direct investment, central bank independence and political institutions. Journal of Institutional Economics 16, 931–953. https://doi.org/10.1017/S1744137420000193