Financial Development in Africa: The Impact of Tourism, Renewable Energy, and Trade Openness

What is it about?

This study investigates the impact of renewable energy consumption, tourism development, and trade openness on financial development in selected African countries. The study uses data from the World Bank's World Development Indicators for seven African countries over the period 1995-2021. The results from the Fully Modified Ordinary Least Square (FMOLS) regression show that trade openness, international tourism, and renewable energy stimulate financial development in the long run. The quantile regression reveals that the financial sector gains associated with these factors are greater for countries with lower financial sector development. The study suggests that policies that improve tourism development, promote renewable energy consumption, and intensify economic openness may be important catalysts for stimulating further financial development in Africa.

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Why is it important?

This research is important because it sheds light on the potential impacts of tourism development, renewable energy consumption, and trade openness on financial development in selected African countries. By examining these relationships, policymakers and stakeholders can gain insights into how to promote further financial development in the region, which is crucial for economic growth and stability. Key Takeaways: 1. Long-run effects: The study found that trade openness, international tourism, and renewable energy have significant effects on financial development indicators in the long run, suggesting that these factors can contribute to financial development beyond traditional determinants. 2. Positive impacts: The research indicates that increased trade openness, tourism development, and renewable energy consumption can stimulate financial development, providing policymakers with potential avenues for promoting financial development in African countries. 3. Quantile regression: The study utilized quantile regression, which revealed that the positive effects of trade openness, international tourism, and renewable energy on financial development are greater for countries with lower financial sector development, suggesting that these policies can be particularly beneficial for less developed financial markets. 4. Heterogeneous impacts: The quantile regression results highlight that the effects of tourism development, renewable energy consumption, and trade openness on financial development are not uniform across different quantiles, indicating that tailored policies may be necessary to address the diverse needs of financial sectors in African countries. 5. Future research: The study suggests that future research could explore the relationship between tourism development, renewable energy consumption, and financial development with a focus on the stock market, providing a more comprehensive understanding of financial development in African countries.