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Fragmentation and financial development in Sub-Saharan Africa Countries: the case of diversity debit versus diversity dividend theses

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Abstract

While the development impacts of finance have been extensively documented in the empirical growth and financial development literatures on the one hand, the list of drivers of financial development is undoubtedly expansive to accommodating some other important variables on the other hand. Owing to the growing importance of fragmentation on development outcomes, this study specifically queries how fragmentation influences financial development for a panel of Thirty-five (35) sub-Saharan African countries, over the period 2005–2015. We proxy fragmentation with broad measures of ethnicity and religion which are further decomposed into their subcomponent indices viz.: fractionalization and polarization, respectively. The empirical evidence is based on Pooled Ordinary Least Squares, Fixed Effects Model and Dynamic System Generalized Method of Moments with forward orthogonal deviations. The following are the main findings. First, ethnic polarization is found to exert a positive significant impact on various measures of financial development thus validating the Ethnic Diversity Dividend Thesis. Second, the much prevalent view of the Ethnic Diversity Debit Thesis finds application in ethnic fractionalization and religion diversity measures. Lastly, the significant roles of some conditioning variables like GDP per capita, infrastructure, institutional quality, legal origins and latitude are also empirically validated. On policy ground; we suggest, applaud and welcome any private sector-led reform which could help strengthening healthy competition between/among the ethnically polarized groups within the African society.

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Notes

  1. That is, ethnic diversity often exerts negative consequences on socio-economic and political outcomes.

  2. Is used interchangeably with fragmentation.

  3. That ethnic diversity may equally exhibit some positive effects since it is a collection of people from various socio-economic and cultural backgrounds with a great deal of diverse talents.

  4. Equally the advantages of a well-developed financial sector have also been noted with respect to: reduction of transaction and information costs, pooling and management of risks, resource allocation and savings mobilization as well as trade facilitation, respectively.

  5. The lists of the countries are: Angola, Benin, Botswana, Burundi, Cabo Verde, Cameroon, Central African Republic, Chad, Comoros, Congo Dem. Rep., Congo Rep., Cote D'Ivoire (Ivory coast), Gabon, Gambia The, Ghana, Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Niger, Nigeria, Rwanda, Senegal, South Africa, Swaziland, Tanzania, Togo, Uganda and Zambia.

  6. They calculated religious fractionalization and polarization indices across the following groups: Judaism, Christianity, Islam, Buddhism, Hinduism, Taoism, Confucianism, Chinese Religions, Bahaism, Synretic Cults, Animist Religions, Other religions, and no Religion.

  7. They believed that ethnic groups are either fixed, biologically given entities, or, that they are of social conventions.

  8. The result can be made available upon request.

  9. He postulated that capitalism in the Northern region of Europe grew relatively better as a result of Protestant ethic which greatly influenced a mass of the population to develop their own corporations.

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  1. Department of Economics, Faculty of Social Sciences, University of Lagos, Akoka, Lagos, Nigeria

    Bello K. Ajide

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I sincerely want to appreciate and thank the reviewers of this manuscript for their insightful comments. The quality of those comments has greatly enriched the paper. All other errors herein are solely mine.

Appendices

Appendix 1

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Table 11 Description of variables
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Appendix 2

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Table 12 GMM Estimates of the relationship between Ethno-religious diversity and financial development
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Appendix 3

See Table 13.

Table 13 GMM estimates of the relationship between Ethno-Religious diversity and financial development
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Ajide, B.K. Fragmentation and financial development in Sub-Saharan Africa Countries: the case of diversity debit versus diversity dividend theses. Econ Change Restruct 53, 379–428 (2020). https://doi.org/10.1007/s10644-019-09245-9

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