Olusegun Felix Ayadi, Solabomi Ajibolade, Johnnie Williams and Ladelle M. Hyman
The financial economics literature points to the likelihood that transparency affects the inflows of direct foreign investments. The purpose of this paper is to examine the…
Abstract
Purpose
The financial economics literature points to the likelihood that transparency affects the inflows of direct foreign investments. The purpose of this paper is to examine the relationship between degree of transparency in an economy and the level of foreign direct investment (FDI) inflows using cross-section and time series data from 13 Sub-Saharan African countries from 1998 through 2008.
Design/methodology/approach
The paper employed a panel unit root and panel cointegration tests to data from 13 Sub-Saharan countries from 1998 through 2008. The long-run equilibrium relationship is estimated by the fully modified ordinary least squares (FMOLS) method. The cointegration framework employed in this study accounts for individual as well as time effects by adjusting for potential heterogeneity and serial correlation existing in the data panel.
Findings
The results imply that the level of transparency and size of FDI inflows into Sub-Saharan Africa have a long-run equilibrium relationship.
Research limitations/implications
The role of multinational corporations in increasing the levels of corruption in host countries is supported in this study.
Practical implications
The role of multinational corporations in contributing to the absence of transactional transparency in host countries is supported in this study. The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions should be endorsed by African countries. African countries should make efforts to transform their domestic political and economic environments in order to enhance transparency and allow rule of law to apply.
Originality/value
This paper is the first to empirically test the aforementioned long-run equilibrium relationship by isolating the role of transparency in international capital flows.
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O. Felix Ayadi and Ladelle Hyman
Many developing countries embarked on a program of financial liberalization in order to maximize the benefits associated with a free market system. The preponderance of the…
Abstract
Purpose
Many developing countries embarked on a program of financial liberalization in order to maximize the benefits associated with a free market system. The preponderance of the evidence in the financial economics literature is that market‐determined interest rates become volatile subsequent to financial liberalization. This paper aims to examine the liberalization program in Nigeria with a view to finding out whether the level of banking competition is increased after financial liberalization.
Design/methodology/approach
The test of banking competition is premised on the argument by Hannan and Berger that retail interest rate rigidity results from either market concentration or the size of the customer base. The cointegration and error correction models are applied to quarterly wholesale and retail interest rates from 1987 through 2001, in order to analyze their long‐run as well as short‐run dynamics.
Findings
The retail lending and deposit rates possess a long‐run equilibrium relationship. Moreover, the minimum rediscount (wholesale) rate (MRR) and the deposit rate also exhibit a long‐run equilibrium relationship. If the lending and deposit rates diverge from their long‐run equilibrium relationship, 37 per cent of the disequilibrium is corrected each quarter by changes in the lending rate. On the other hand, any disequilibrium in the long‐run relationship between the deposit and MRRs can be corrected by changes in the MRR at about 58 per cent per quarter.
Originality/value
The results imply that the financial liberalization in Nigeria failed to achieve its key objective of a market‐driven interest rate system.
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Abdelaziz Hakimi and Helmi Hamdi
The purpose of this paper is to analyze the effects of corruption on investment and growth in 15 Middle East and North African (MENA) countries during the period 1985-2013. The…
Abstract
Purpose
The purpose of this paper is to analyze the effects of corruption on investment and growth in 15 Middle East and North African (MENA) countries during the period 1985-2013. The authors used the International Country Risk Guide (ICRG) corruption index and conducted a panel cointegration analysis and Granger causality procedure to detect the dynamic relationships between the variables. Results indicate that corruption is a serious hurdle to economic growth in MENA countries since it affects investment activities and foreign direct investment inflows. In this case, policymakers have to implement effective anti-corruption strategies to avoid the epidemic of corruption.
Design/methodology/approach
The authors used the ICRG corruption index and conducted a panel cointegration analysis and Granger causality procedure to detect the dynamic relationships between the variables.
Findings
The main findings of this paper show that corruption is a serious hurdle to economic growth in MENA countries since it affects investment activities and foreign direct investment inflows. In this case, policymakers have to implement effective anti-corruption strategies to avoid the epidemic of corruption.
Research limitations/implications
Unfortunately, in this study the authors did not use institutional variables to see their role and to judge whether governments should enhance the quality of institution and improve the corporate governance. This would be an opportunity to expand the sample and to conduct a new research in the near future to assess the real costs of corruption in the MENA region.
Practical implications
Governments and policymakers need to apprehend and admit that corruption is an important issue that deters foreign direct investment and threats the economic development and growth. Corruption can also deteriorate the infrastructure and increase the cost of doing business for both government and private sector which in turn will lower the growth (Tanzi and Doovi, 1997). It is worth recalling that during the past five years, a large part of the MENA region has witnessed multiple social upheavals. Hence, corruption must be tackled effectively and coherently to avoid further social tensions. It is the proper time to take serious steps and strict policy actions within a zero-tolerance framework to fight corruption and its widespread. New rules, laws, and anti-corruption procedures are among the most important initiatives that governments should implement. The governments should also increase the public awareness of the multiple drawbacks of corruption by publishing official reports and data on the most corrupted sector in the country. In this case, media will have a key role to diffuse the necessary information.
Originality/value
While most of the previous studies have employed GMM and OLS techniques, the authors opt a panel vector error correction model and cointegration technique to detect causality between the variables used in the model for the present study.