The Effect of Financial Liberalisation on Financial Sector Development in The Gambia
fianncial liberalisation
DOI:
https://doi.org/10.14738/assrj.68.6915Keywords:
liberalisation, reforms, Gambia, deepeningAbstract
The Gambia started its financial liberalisation policies in the mid-1980s with a number of structural and institutional reforms resulting to a marked improvement in the financial sector. The study attempts to establish whether the reforms undertaken have increased financial intermediation thus impacting on financial deepening in the country. The methodology made use of various variables and macro-economic indicators to test the relationship between financial intermediation and financial deepening in an economy, applying stepwise least squares regression method.
The study found that The Gambian financial system though shallow, has reported significant improvements over the years compared to the commencement of the reforms in the 80s. Results revealed that improvements in the rule of law, structural reforms, legal enforcements, regulatory reforms and diversification have increased intermediation and help boost the banking and financial system in The Gambia. The economy performed better after these improvements with diversified financial systems including microfinance, licensed bureaus, expansion in insurance companies including Islamic insurance – Takaful.
References
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Tanzania. Journal of international development, 12 (7): 939-939-950.
Allen, F. (1990) The market for information and the origin of financial intermediation. Journal of
Financial Intermediation, 1 (1): 3-30.
Atindéhou, R.B., Gueyie, J.P. and Amenounve, E.K. (2005) Financial intermediation and economic
growth: evidence from Western Africa. Applied Financial Economics, 15 (11): 777-790.
Beck, Thorstein, Demirguc-Kunt, Asli, & Maksimovic, Vijislav. (2004) The determinants of financing
obstacles, World Bank Policy Research Working Paper 3204.
Beck, Thorstein, Demirguc-Kunt, Asli, & Paria, Maira Soledad Martinez. (2007). Banking service for
everyone? Barriers to bank access and Use Around the world. World Bank Policy Research
Working Paper 4079.
Beck, Thorstein, Demirguc-Kunt, Asli, & Paria, Maria Soledad Martinez. (2008). Banking financing for
SMEs around the world: Drivers, Obstacles, Business Models and Lending Practices. World Bank Policy Research Working Paper 4785.
Beck, T., Levine, R. and Loayza, N. (2000) Finance and the sources of growth, Journal of Financial
Economics, 58 (1-2): 261-300.
Bencivenga, V.R. and Smith, B.D. (1991) Financial Intermediation and Endogenous Growth. Review
of Economic Studies, 58 (194): 195.
Chou, Y.K. (2007) Modeling Financial Innovation and Economic Growth: Why the Financial Sector
Matters to the Real Economy. Journal of Economic Education, 38 (1): 78-90.
Calderón, C. and Liu, L. (2003) The direction of causality between financial development and
economic growth. Journal of Development Economics, 72 (1): 321.
Darrat, A.F., LaBarge, K.P. and LaBarge, R.A. (1989) Is Financial Deepening a Reliable Prescription for
Economic Growth? American Economist, 33 (2)
Delechat, Corinne, Ramirez, Gustavo, Wagh, Smita, & Wakeman-Linn, John. (2010). How Global
Financial Markets Affect Sub-Saharan Africa. IMF Staff Pap, 57(1), 172-208.
Demetriades, P.O. and Hussein, K.A. (1996) Does financial development cause economic growth?
Time-series evidence from 16 countries. Journal of Development Economics, 51 (2): 387-411.
Demetriades, P.O. and Luintel, K.B. (1996) Banking Sector Policies and Financial Development in
Nepal. Oxford Bulletin of Economics & Statistics, 58 (2): 355.
Demirhan, E., Aydemir, O. and Inkaya, A. (2011) The Direction of Causality between Financial
Development and Economic Growth: Evidence from Turkey. International Journal of Management, 28 (1): 3-3-19,198.
Demetriades, P.G, & Hussein, K. (1996). Does financial Development Causes Economic Growth? Time
Series evidence from 16 countries. Journal of Development Economics, 51(387-411).
Demirguc-kunt, Asli (2007) Finance for Growth, World Bank, Oxford University Press, N.Y.
Demirguc-Kunt, Asli, & Levine, Ross. (2008). Finance and economic opportunity (Vol. 4468): World
Bank Policy Research Working Paper.
Diaz-Alejandro, C. (1985) Good-Bye Financial Repression, Hello Financial Crash. Journal of
Development Economics, 19 (1): 1.
Djankov, Simeon, McLiesh, Caralee, & Shleifer, Andrei. (2007). Private Credit in 129 Countries.
Journal of Financial Economics, 84(299).
Fosu, A.K., Kimenyi, M.S. and Ndung'u, N.,S. (2003) Economic reforms and restructuring in sub-
Saharan Africa: an overview. Journal of African economies, 12 (2): 1-11.
Fowowe, B. (2008) Financial Liberalization Policies and Economic Growth: Panel Data Evidence from
Sub-Saharan Africa. African Development Review, 20 (3): 549-574.
Gries, T., Kraft, M. and Meierrieks, D. (2009) Linkages Between Financial Deepening, Trade
Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa. World Development, 37 (12): 1849-1860.
Jaabi, Seeku (2014) Enterprise Finance and Economic Development: The Study of Fish Industry in
Uganda and The Gambia, Unpublished PhD Thesis, University of Malaya, Malaysia
King, R.G. and Levine, R. (1993a) Finance and growth: Schumpeter might be right. Quarterly Journal
of Economics, 108 (3): 717.
King, R.G. and Levine, R. (1993b) Finance, entrepreneurship, and growth: Theory and evidence.
Journal of Monetary Economics, 32 (3): 513-542.
Levine, Ross. (1997). Financial development and economic growth: Views and Agenda. Economic
Literature, 35, 688-726.
Lucas, R.E., Jr. (1988) On the Mechanics of Economic Development. Journal of Monetary Economics,
22 3-42.
Manning, M.J. (2003) Finance Causes Growth: Can We Be So Sure? Berkeley Electronic Press, 3 (1):
1-22.
Mavrotas, G. and Kelly, R. (2001) Savings Mobilization and Financial Sector Development: The Nexus.
Savings and Development, 25 33-66.
McKinnon, R.I. (1973) Money & Capital. (First Edition) ed. Washington, D.C. USA: The Brookings
Institution.
Mkandawire, T. (1999) The political economy of financial reform in Africa. Journal of International
Development, 11 (3): 321-321.
Murinde, V. and Eng, F.S.H. (1994) Financial development and economic growth in Singapore:
Demand-following or supply-leading? Applied Financial Economics, 4 (6): 391-404.
Kasekende, L. (2007) Plenary session on financial services and economic development in Africa:
Uganda's experience with financial sector reform and lessons for Africa. Journal of African economies, 16 (1): 58-58-74.
Khan, M.S., Senhadji, A.S. and Smith, B.D. (2006) Inflation and Financial Depth. Macroeconomic
Dynamics, 10 (2): 165-165-182.
Levine, R., Loayza, N. and Beck, T. (2000) Financial intermediation and growth: Causality and causes.
Journal of Monetary Economics, 46 (1): 31-77.
Loayza, N.V. and Ranciere, R. (2006) Financial Development, Financial Fragility, and Growth, Journal
of Money, Credit & Banking 38 (4): 1051-1076.
Nazmi, N. (2005) Deregulation, financial deepening and economic growth: The case of Latin America.
Quarterly Review of Economics & Finance, 45 (2): 447-459.
NEPAD-OECD Secretariat November 2009, "Deepening African Financial Markets for Growth and
Investment", Ministerial Meeting and Expert Roundtable, ed. Secretariat of NEPAD-OECD Africa Investment Initiative, NEPAD-OECD, EU.
Nzotta, S.M. and Okereke, E.J. (2009) Financial Deepening and Economic Development in Nigeria: An
Empirical Investigation. African Journal of Accounting, Economics, Finance and Banking Research, Vol.5 (No.5): 52-66.
Odhiambo, N.M. (2008) Financial depth, savings and economic growth in Kenya: A dynamic causal
linkage. Economic Modelling, 25 (4): 704-713.
Odhiambo, N.M. (2009) Interest Rate Reforms, Financial Deepening and Economic Growth in Kenya:
An Empirical Investigation. The Journal of Developing Areas, 43 (1): 295-295-313.
Odhiambo, N.M. (2010a) Financial deepening and poverty reduction in Zambia: an empirical
investigation. International Journal of Social Economics, 37 (1): 41-53.
Odhiambo, N.M. (2010b) Interest rate reforms, financial deepening and economic growth in
Tanzania: a dynamic linkage. Journal of Economic Policy Reform, 13 (2): 201-212.
Oduor, J., Karingi, S. and Mwaura, S. (2011) Efficiency of financial market intermediation in
Kenya: A comparative analysis. Journal of Policy Modeling, 33 (2): 226-240.
Reinhart, C.M. and Tokatlidis, I. (2003) Financial liberalisation: the African experience. Journal of
African Economies, 12 (2): 53-53-88.
Rousseau, P.L. and Yilmazkuday, H. (2009) Inflation, financial development, and growth: A trilateral
analysis. Economic Systems, 33 (4): 310-324.
Rousseau, P. and Wachtel, P. (2011) What is Happening to the Impact of Financial Deepening on
Economic Growth? Economic inquiry, 49 (1): 276-288.
Saunders, A. and Cornett, M.M. (2011) Financial Institutions Management. (Seventh Edition)
International Edition. New York, USA: McGraw-Hill.
Schumpeter, J.A. (1911) The Theory of Economic Development. USA: Harvard University Press,
Cambridge, MA.
Seck, D. and El Nil, Y.,H. (1993) Financial liberalization in Africa. World Development, 21 (11): 1867-
1867.
Shaw, E.S. (1973) Financial Deepening in Economic Development. Oxford: Oxford University Press, .
Sriram, S.S. (September 2009) The Gambia: Demand for Broad Money and Implications for Monetary
Policy Conduct. International Monetary Fund Working Papers(African Department) - WP/09/192, .
Steel, W.F., Aryeetey, E., Hettige, H., et al. (1997) Informal financial markets under liberalization in
four African countries. World Development, 25 (5): 817-817-830.
Townsend, R.M. and Ueda, K. (2006) Financial Deepening, Inequality, and Growth: A Model-Based
Quantitative Evaluation. Review of Economic Studies, 73 (1): 251-293.
Tressel, T. and Detragiache, E.(2008) Do Financial Sector Reform lead to Financial Development?
Evidence from a New Dataset. IMF Working Paper, WP/08/265.
Turtelboom, B. (1991) Interest Rate Liberalization: Some Lessons from Africa. IMF Working Paper,
WP/91/121.
Udo Ndebbio, J.E. (2004) Financial Deepening, Economic Growth and Development: Evidence feom
selected Sub Saharan African Countries. African Economic Research Consortium, 142 1-30.
Wachtel, P. (2003) How Much Do We Really Know about Growth and Finance? Economic Review, 88
(1): 33.
Waheed, A. and Younus, N. (2010) Effects of Financial Sector's Development and Financial Sector's
Efficiency on Economic Growth: Empirical Evidence from Developing and Developed Countries. International Journal of Economic Perspectives, 4 (2): 449-449-458.
Wilson, R. Hossain, A. Chowdhury, A. et al. (1996) Financial Development and Economic Growth:
Theory and Experiences from Developing Countries, (First Edition) London, UK: Routledge.
Woodford, M. (2010) Financial Intermediation and Macroeconomic Analysis. Journal of Economic
Perspectives, 24 (4): 21-44.
Zhuang, J., Gunatilake, H., Niimi, Y., et al. (2010) Financial Sector Development, Economic Growth,
and Poverty Reduction: A Literature Review. SSRN Working Paper Series, .
Tanzania. Journal of international development, 12 (7): 939-939-950.
Allen, F. (1990) The market for information and the origin of financial intermediation. Journal of
Financial Intermediation, 1 (1): 3-30.
Atindéhou, R.B., Gueyie, J.P. and Amenounve, E.K. (2005) Financial intermediation and economic
growth: evidence from Western Africa. Applied Financial Economics, 15 (11): 777-790.
Beck, Thorstein, Demirguc-Kunt, Asli, & Maksimovic, Vijislav. (2004) The determinants of financing
obstacles, World Bank Policy Research Working Paper 3204.
Beck, Thorstein, Demirguc-Kunt, Asli, & Paria, Maira Soledad Martinez. (2007). Banking service for
everyone? Barriers to bank access and Use Around the world. World Bank Policy Research
Working Paper 4079.
Beck, Thorstein, Demirguc-Kunt, Asli, & Paria, Maria Soledad Martinez. (2008). Banking financing for
SMEs around the world: Drivers, Obstacles, Business Models and Lending Practices. World Bank Policy Research Working Paper 4785.
Beck, T., Levine, R. and Loayza, N. (2000) Finance and the sources of growth, Journal of Financial
Economics, 58 (1-2): 261-300.
Bencivenga, V.R. and Smith, B.D. (1991) Financial Intermediation and Endogenous Growth. Review
of Economic Studies, 58 (194): 195.
Chou, Y.K. (2007) Modeling Financial Innovation and Economic Growth: Why the Financial Sector
Matters to the Real Economy. Journal of Economic Education, 38 (1): 78-90.
Calderón, C. and Liu, L. (2003) The direction of causality between financial development and
economic growth. Journal of Development Economics, 72 (1): 321.
Darrat, A.F., LaBarge, K.P. and LaBarge, R.A. (1989) Is Financial Deepening a Reliable Prescription for
Economic Growth? American Economist, 33 (2)
Delechat, Corinne, Ramirez, Gustavo, Wagh, Smita, & Wakeman-Linn, John. (2010). How Global
Financial Markets Affect Sub-Saharan Africa. IMF Staff Pap, 57(1), 172-208.
Demetriades, P.O. and Hussein, K.A. (1996) Does financial development cause economic growth?
Time-series evidence from 16 countries. Journal of Development Economics, 51 (2): 387-411.
Demetriades, P.O. and Luintel, K.B. (1996) Banking Sector Policies and Financial Development in
Nepal. Oxford Bulletin of Economics & Statistics, 58 (2): 355.
Demirhan, E., Aydemir, O. and Inkaya, A. (2011) The Direction of Causality between Financial
Development and Economic Growth: Evidence from Turkey. International Journal of Management, 28 (1): 3-3-19,198.
Demetriades, P.G, & Hussein, K. (1996). Does financial Development Causes Economic Growth? Time
Series evidence from 16 countries. Journal of Development Economics, 51(387-411).
Demirguc-kunt, Asli (2007) Finance for Growth, World Bank, Oxford University Press, N.Y.
Demirguc-Kunt, Asli, & Levine, Ross. (2008). Finance and economic opportunity (Vol. 4468): World
Bank Policy Research Working Paper.
Diaz-Alejandro, C. (1985) Good-Bye Financial Repression, Hello Financial Crash. Journal of
Development Economics, 19 (1): 1.
Djankov, Simeon, McLiesh, Caralee, & Shleifer, Andrei. (2007). Private Credit in 129 Countries.
Journal of Financial Economics, 84(299).
Fosu, A.K., Kimenyi, M.S. and Ndung'u, N.,S. (2003) Economic reforms and restructuring in sub-
Saharan Africa: an overview. Journal of African economies, 12 (2): 1-11.
Fowowe, B. (2008) Financial Liberalization Policies and Economic Growth: Panel Data Evidence from
Sub-Saharan Africa. African Development Review, 20 (3): 549-574.
Gries, T., Kraft, M. and Meierrieks, D. (2009) Linkages Between Financial Deepening, Trade
Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa. World Development, 37 (12): 1849-1860.
Jaabi, Seeku (2014) Enterprise Finance and Economic Development: The Study of Fish Industry in
Uganda and The Gambia, Unpublished PhD Thesis, University of Malaya, Malaysia
King, R.G. and Levine, R. (1993a) Finance and growth: Schumpeter might be right. Quarterly Journal
of Economics, 108 (3): 717.
King, R.G. and Levine, R. (1993b) Finance, entrepreneurship, and growth: Theory and evidence.
Journal of Monetary Economics, 32 (3): 513-542.
Levine, Ross. (1997). Financial development and economic growth: Views and Agenda. Economic
Literature, 35, 688-726.
Lucas, R.E., Jr. (1988) On the Mechanics of Economic Development. Journal of Monetary Economics,
22 3-42.
Manning, M.J. (2003) Finance Causes Growth: Can We Be So Sure? Berkeley Electronic Press, 3 (1):
1-22.
Mavrotas, G. and Kelly, R. (2001) Savings Mobilization and Financial Sector Development: The Nexus.
Savings and Development, 25 33-66.
McKinnon, R.I. (1973) Money & Capital. (First Edition) ed. Washington, D.C. USA: The Brookings
Institution.
Mkandawire, T. (1999) The political economy of financial reform in Africa. Journal of International
Development, 11 (3): 321-321.
Murinde, V. and Eng, F.S.H. (1994) Financial development and economic growth in Singapore:
Demand-following or supply-leading? Applied Financial Economics, 4 (6): 391-404.
Kasekende, L. (2007) Plenary session on financial services and economic development in Africa:
Uganda's experience with financial sector reform and lessons for Africa. Journal of African economies, 16 (1): 58-58-74.
Khan, M.S., Senhadji, A.S. and Smith, B.D. (2006) Inflation and Financial Depth. Macroeconomic
Dynamics, 10 (2): 165-165-182.
Levine, R., Loayza, N. and Beck, T. (2000) Financial intermediation and growth: Causality and causes.
Journal of Monetary Economics, 46 (1): 31-77.
Loayza, N.V. and Ranciere, R. (2006) Financial Development, Financial Fragility, and Growth, Journal
of Money, Credit & Banking 38 (4): 1051-1076.
Nazmi, N. (2005) Deregulation, financial deepening and economic growth: The case of Latin America.
Quarterly Review of Economics & Finance, 45 (2): 447-459.
NEPAD-OECD Secretariat November 2009, "Deepening African Financial Markets for Growth and
Investment", Ministerial Meeting and Expert Roundtable, ed. Secretariat of NEPAD-OECD Africa Investment Initiative, NEPAD-OECD, EU.
Nzotta, S.M. and Okereke, E.J. (2009) Financial Deepening and Economic Development in Nigeria: An
Empirical Investigation. African Journal of Accounting, Economics, Finance and Banking Research, Vol.5 (No.5): 52-66.
Odhiambo, N.M. (2008) Financial depth, savings and economic growth in Kenya: A dynamic causal
linkage. Economic Modelling, 25 (4): 704-713.
Odhiambo, N.M. (2009) Interest Rate Reforms, Financial Deepening and Economic Growth in Kenya:
An Empirical Investigation. The Journal of Developing Areas, 43 (1): 295-295-313.
Odhiambo, N.M. (2010a) Financial deepening and poverty reduction in Zambia: an empirical
investigation. International Journal of Social Economics, 37 (1): 41-53.
Odhiambo, N.M. (2010b) Interest rate reforms, financial deepening and economic growth in
Tanzania: a dynamic linkage. Journal of Economic Policy Reform, 13 (2): 201-212.
Oduor, J., Karingi, S. and Mwaura, S. (2011) Efficiency of financial market intermediation in
Kenya: A comparative analysis. Journal of Policy Modeling, 33 (2): 226-240.
Reinhart, C.M. and Tokatlidis, I. (2003) Financial liberalisation: the African experience. Journal of
African Economies, 12 (2): 53-53-88.
Rousseau, P.L. and Yilmazkuday, H. (2009) Inflation, financial development, and growth: A trilateral
analysis. Economic Systems, 33 (4): 310-324.
Rousseau, P. and Wachtel, P. (2011) What is Happening to the Impact of Financial Deepening on
Economic Growth? Economic inquiry, 49 (1): 276-288.
Saunders, A. and Cornett, M.M. (2011) Financial Institutions Management. (Seventh Edition)
International Edition. New York, USA: McGraw-Hill.
Schumpeter, J.A. (1911) The Theory of Economic Development. USA: Harvard University Press,
Cambridge, MA.
Seck, D. and El Nil, Y.,H. (1993) Financial liberalization in Africa. World Development, 21 (11): 1867-
1867.
Shaw, E.S. (1973) Financial Deepening in Economic Development. Oxford: Oxford University Press, .
Sriram, S.S. (September 2009) The Gambia: Demand for Broad Money and Implications for Monetary
Policy Conduct. International Monetary Fund Working Papers(African Department) - WP/09/192, .
Steel, W.F., Aryeetey, E., Hettige, H., et al. (1997) Informal financial markets under liberalization in
four African countries. World Development, 25 (5): 817-817-830.
Townsend, R.M. and Ueda, K. (2006) Financial Deepening, Inequality, and Growth: A Model-Based
Quantitative Evaluation. Review of Economic Studies, 73 (1): 251-293.
Tressel, T. and Detragiache, E.(2008) Do Financial Sector Reform lead to Financial Development?
Evidence from a New Dataset. IMF Working Paper, WP/08/265.
Turtelboom, B. (1991) Interest Rate Liberalization: Some Lessons from Africa. IMF Working Paper,
WP/91/121.
Udo Ndebbio, J.E. (2004) Financial Deepening, Economic Growth and Development: Evidence feom
selected Sub Saharan African Countries. African Economic Research Consortium, 142 1-30.
Wachtel, P. (2003) How Much Do We Really Know about Growth and Finance? Economic Review, 88
(1): 33.
Waheed, A. and Younus, N. (2010) Effects of Financial Sector's Development and Financial Sector's
Efficiency on Economic Growth: Empirical Evidence from Developing and Developed Countries. International Journal of Economic Perspectives, 4 (2): 449-449-458.
Wilson, R. Hossain, A. Chowdhury, A. et al. (1996) Financial Development and Economic Growth:
Theory and Experiences from Developing Countries, (First Edition) London, UK: Routledge.
Woodford, M. (2010) Financial Intermediation and Macroeconomic Analysis. Journal of Economic
Perspectives, 24 (4): 21-44.
Zhuang, J., Gunatilake, H., Niimi, Y., et al. (2010) Financial Sector Development, Economic Growth,
and Poverty Reduction: A Literature Review. SSRN Working Paper Series, .
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Published
2019-08-25
How to Cite
Jaabi, S. A. K., & Barrai, M. . (2019). The Effect of Financial Liberalisation on Financial Sector Development in The Gambia: fianncial liberalisation. Advances in Social Sciences Research Journal, 6(8), 216–232. https://doi.org/10.14738/assrj.68.6915
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