OPENNESS, INSTITUTIONS AND FINANCIAL DEVELOPMENT IN ECOWAS COUNTRIES

There exist a vast literature in support of the positive link between financial development and economic growth in many countries. The question of what drives financial development within the Economic Community of West African States (ECOWAS) as a group, is however not conclusively addressed by the extant literature. This study sheds light on the relationship by examining the role of openness and institutions in the financial development of ECOWAS countries. The hypothesized link between openness, institutions and financial development was specified in a linear dynamic panel data model and estimated using system generalized methods of moment (SGMM). The study found a positive and statistically significant link between openness and financial development while institutions contribute negatively to financial development in the region over the study period. The negative link between institutions and financial development may be indicative of the weak institutions within the region. The study supports the promotion of trade and financial openness as well as strengthening institutions to promote financial development in ECOWAS