LAWS, POLITICS AND BANKING SECTOR DEVELOPMENT: A COMPARATIVE ANALYSIS OF SELECTED G-7 GROUP AND ECOWAS COUNTRIES
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Abstract
he study investigated the relationship between law, politics and banking sector development in selected G-7 group and ECOWAS countries. The panel ARDL approach suggested by Peseran et al. (2001) was adopted for the estimation, and quarterly time series data for the period 1970 – 2019 were used. Law is measured with rule of law, voice and accountability, government effectiveness and regulatory quality, while politics is captured by corruption control and, political stability and absence of violence. The ratio of bank credit to private sector is used to represent banking sector development. The results from the estimated panel ARDL model revealed that a significant relationship exists among the measures of law, politics and banking sector development in the panel. However, it was observed that the legal system in the G7 group is more viable than that of ECOWAS countries. In addition, law and politics in both groups exert strong and significant influences on banking sector development. The Pedroni Cointegration test results led to the rejection of of no cointegration. Further evidence shows a significant long-run relationship between law, politics and banking sector development, while the significant lagged error correction term (ECT), both within the panel and in the individual groups that make up the panel revealed granger causality in the relationship. Finally, the interactive effects of the measures of law, politics and macroeconomic environment significantly affect banking sector development. Thus, we conclude that viable legal systems and stable political environments promote banking sector development.
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