Financial Liberalization and Credit Intermediation: Evidence from Selected Economic Community of West African States (ECOWAS) Member Countries

Abstract

The paucity of empirical evidences on the financial liberalization-credit growth nexus in the ECOWAS region necessitated the study. The paper empirically investigates the link between financial liberalization and credit intermediation using data that covered the period 2012-2019 for ten selected ECOWAS countries. Utilizing the system-GMM estimation techniques, the findings show a positive link between financial liberalization and credit mobilizing, albeit a weak impact, perhaps due to stringent and complex lending requirements by banks that includes exorbitant lending rate and huge collateral requirements. Growth rate of GDP, lending rate and external resource inflows are positively and significantly related to credit mobilization. Further evidence shows a negative and significant relationship between inflation and credit mobilization. Based on the foregoing findings, it is recommended that continuous reforms of the financial system be encouraged. Growth and external resource inflows- enhancing policies are also imperative, alongside stable macroeconomic environment to enhance efficient credit intermediation in the ECOWAS region. 

Keywords: Financial liberalization, Credit Intermediation, Financial Reforms, System-GMM

Introduction