In the late 1970s and early 1980s, most developed and developing countries economies were in a crisis of economic policy. Due to unfavorable circumstances and the deteriorating economic and financial conditions, the financial system attested to have many deficiencies and was unable to generate economic growth in those countries. Following the financial aid from World Bank and International Monetary Fund, many developing countries in Africa, Asia, and Latin America have undertaken economic reforms to create a sustainable investment environment and develop the private sector through an economic system based on free and market led economic mechanisms. Apparently the result of these reforms was to transform economies of many developing countries, where economic growth was supported by strong private sector growth, financial sector development and rapid maturation of capital markets (Napoca, 2012).
In connection with the above reforms, financial liberalization was an important component. The reform of financial liberalization means to give more authority to the central banks to conduct suitable monetary policy, to privatize and reform the banking sector, to liberalize interest rates, and, more generally, to develop and promote the role of secondary markets in financing the economy and allowing free movement of capital to encourage foreign direct investment. In nutshell, the main objective is to enable developing economies to emerge from recession, and later to have a sustainable development.
Many empirical studies have been conducted to highlight the impact of financial liberalization and financial development on the financial sector and overall economic performance in developed and developing countries. Authors that have difference views on the expected impact of financial development and liberalization in developing economies result from the facts that are focused on short-term effect and others are focused on its long-term effect.
Thus, Authors, for instance, McKinnon, (1973), Shaw, (1973); Levine, (1997) and, Ang, (2007) admire the benefits of financial liberalization and the positive relationship between the financial development and growth. It had been reveled that financial liberalization contributes, on the one hand, to strengthen the functioning of financial systems, to develop the competitiveness of banking and financial sector and to transform savings into funds available for financing the economy. In addition, a well-functioning financial system encourages technological innovation and, in turn, improves economic growth. On the other hand, helps to promote international diversification and access to global capital market. For example, Kim and Single (2000) argue that the desertion of controls on financial sector leads to more efficient capital markets in emerging economies, allows the guidance of existing funds and national economies to most productive investments. In contrary, (Robinson, (1954) and Singh, (1997)) argue that finance as an insignificant impact on growth and they suggest that financial and monetary systems do not have a long-run relationship with economic growth
Levine and Zervos, (1998), Babatunde, (2011), and Mishkin, (2001) argue that liberalization will develop transparency and reduce liquidity problems in developing countries. Some authors, such as Bekaert and Harvey (2000) and Henry (2000), argue that, mainly, participants in emerging markets can enjoy new gains from international diversification like foreign direct investment and optimal cost of capital, after market liberalization. However, Bekaert et al. (2001) argue that economic growth tends to be improved as a result of financial deregulation. However, financial liberalization is a tough process to implement especially in developing countries and it is not totally a risk free process. Financial crises of the 1990s and 2008 demonstrate this.
Objective of the study:
After several years of economic stagnation, there has been a remarkable progress in the economic performance of Sub-Saharan African countries. Though many empirical literatures tend to highlight the challenges and long standing problems affecting the region's economic performance, they have failed to acknowledge the potential and the opportunities for improving economic performance and hence, sustainable economic growth.
Nevertheless, in research made by the World Bank (2010) on 'Yes Africa Can: Successes from a dynamic continent', Chuhan-Pole concludes that the economic improvement witnessed in many SSA countries, in the 21st century, is as a result of: stronger leadership, better governance, improving business climate, innovation, market-based solutions, listening to the people and involvement of the citizenry, and an increasing reliance on home-grown solutions.
Having said that, in one hand, to achieve the Millennium Development Goals (MDGs) and in the other hand, to catch up Africa with Asia and other fast growing Latin American countries, there is a need to find a reliable economic model and identify the opportunities which is suitable for the type of environment these countries find themselves in to come up with sustainable growth.
Consequently, the main objective of this research is to examine in terms of developing the financial sector in SSA countries can reach high growth rates and sustain them for long-term development. To achieve the aim, this research will attempt to find an answer for the main research questions, which is whether and how financial Liberalization affects economic growth in developing countries and how this effect is significant in the SSA countries and attempt to study the challenges and opportunities of the financial liberalization in those countries.
The objectives of the research, thus, are:
' To identify the challenges and opportunities of financial sector development in connection with the financial liberalization of those countries;
' Identify the politic - economic recommendations for decision makers (investors) in SSA countries to prevent and / or reduce financial vulnerability associated with the wave of financial liberalization.
' To identify the effects of institutional quality on financial development in SSA countries.
' To examine the determinant of FDI and its impact on economic growth in SSA countries. In particular, will try to capture whether FDI is a sufficient condition for countries to achieve higher growth rates, or whether FDI, through its interactions with trade openness and human capital, enables these countries to absorb and adopt new technologies and knowledge from advanced countries, in order to catch up.
The methodological and analytical approaches will use in this research are drawn from the empirical literature focusing on financial development and growth and identifying the challenges and opportunities of financial liberalization, so as to examine the objectives of the research. The research reviews extensive theoretical and empirical literature that underpins the role of financial liberalization and in the economic growth of SSA economies and its challenges. This research will partly qualitative and makes use of some descriptive statistics to provide a clearer detail of the analysis.
The research will quantitative and involves statistical analysis using secondary data published by various international and domestic financial institutions like, World Bank, WTO, African Development Bank, International Financial Statistics and World Development Indicators etc. The study will draw data on financial sector development and economic growth for sample of 10-20 countries, which are the lowest GDP per capital income from sub Saharan African countries during the period 2000 to 2013, by drawing different statistical data analysis techniques into one single framework.
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