Financial sector development, anti-money laundering regulations and economic growth
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 22 July 2022
Issue publication date: 16 January 2024
Abstract
Purpose
This study examines the influence of anti-money laundering (AML) regulations on the financial development-economic growth nexus around the world.
Design/methodology/approach
The study uses data from 165 countries spanning continents, income levels, and regulatory regimes from 2012 to 2018. The Prais–Winsten (1954) and Hansen (2000) panel threshold estimation approaches were used to assess the study's hypothesized relationships.
Findings
Financial development, according to the research, generally stimulates economic growth. However, the authors find evidence of AML regulations' threshold effect on the finance-growth connection, with the impact of finance on growth being positive below the threshold value. Above the threshold, however, the authors observe a negative influence. Further, the authors find that AML regulations have a considerable detrimental impact on the finance-growth nexus over the threshold for developed countries. However, the authors find a positive but insignificant effect of finance on growth below the AML regulations threshold for African countries, while finance positively impacts growth above the AML regulations threshold.
Practical implications
The findings of the study imply that countries must make conscious efforts to combat the incidence of money laundering by establishing policies to improve financial transparency and standards, promoting public sector transparency and accountability, reducing legal and political risk, and combating bribery and corruption.
Originality/value
This study contributes to the literature as it is the first attempt to examine the moderating role of AML regulations in the finance-growth nexus. Also, the study examines the threshold effect of how AML regulations impact the finance-growth nexus.
Keywords
Citation
Ofoeda, I., Agbloyor, E. and Abor, J.Y. (2024), "Financial sector development, anti-money laundering regulations and economic growth", International Journal of Emerging Markets, Vol. 19 No. 1, pp. 191-210. https://doi.org/10.1108/IJOEM-12-2021-1823
Publisher
:Emerald Publishing Limited
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