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Article
Publication date: 14 November 2016

Ibrahim Dolapo Raheem, Kazeem Bello Ajide and Oluwatosin Adeniyi

The purpose of this paper is to investigate the role of institutions in the financial development-output growth volatility nexus. It provides new channels through which financial…

Abstract

Purpose

The purpose of this paper is to investigate the role of institutions in the financial development-output growth volatility nexus. It provides new channels through which financial development can dampen the output growth volatilities of the countries under investigation.

Design/methodology/approach

A comprehensive data set for 71 countries covering the period from 1996 to 2012 and the System GMM approach were used. The choice of the methodology is to deal with endogeneity issues such as measurement errors, reverse causality among other issues.

Findings

A number of findings were emanated from the empirical analysis. First, the estimates provided evidence of the volatility-reducing effect of financial development. Second, institutions do not have the same reducing influence on output growth volatility. Third, the interaction of financial development and institutions showed that the output volatility reduction arising from financial development is enhanced in the presence of improved institutions.

Research limitations/implications

The policy implications derived from this study are in twofolds: first, it is important for policymakers to formulate policies that would ensure and enhance the development of the financial sectors, since its importance in minimizing output volatility has been established. Second, institutional quality should be developed so as to further enhance the growth volatility-reducing influence of financial development. Particularly, institutions should be improved along the multiple dimensions captured in the analysis.

Originality/value

To the best knowledge, the novelty of this study to the literature is the introduction of institutions, which is hypothesized to increase the dampening effects of financial development in output growth volatility.

Details

Journal of Economic Studies, vol. 43 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 7 September 2015

Kazeem Bello Ajide, Ibrahim D. Raheem and Oluwatosin Adeniyi

– The purpose of this paper is to empirically examine the role of institutions on the remittances–output growth volatility relationship.

Abstract

Purpose

The purpose of this paper is to empirically examine the role of institutions on the remittances–output growth volatility relationship.

Design/methodology/approach

The data set of this paper is limited to 71 remittances recipient countries. In an attempt to deal with endogeneity issues, the paper adopts the use of system generalised method of moment (GMM).

Findings

First, in consonance with earlier studies, the growth volatility reducing influence of remittances flows was established. Second, unlike the extant literature, the growth volatility reduction potential of remittances was found to be more pronounced in the presence of well-functioning institutions. Finally, the interaction of remittances with our six institutional quality measures showed that growth volatility reduced considerably with better institutions.

Practical implications

In terms of policy, remittances recipient countries need to simultaneously pursue economic and governance reforms. Both of these will enhance the counter-cyclicality of remittances and possibly other capital flows.

Originality/value

Substantial efforts have been devoted to investigating the impact of remittances on output growth volatility, while very little research attention has been devoted to analysing the impact of institutions on the remittances–output growth volatility nexus.

Details

International Journal of Development Issues, vol. 14 no. 3
Type: Research Article
ISSN: 1446-8956

Keywords

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