Regulatory policy uncertainty, banking industry innovations and financial development among emerging markets

Abstract

Purpose This study examines the extent to which regulatory policy uncertainty, macroeconomic risk, banking industry innovations, etc. influence variability in financial sector development among emerging economies in sub-Sahara Africa (SSA). Design/methodology/approach Data for the empirical inquiry were compiled from a sample of 25 economies from the subregion from 2010 to 2020. Empirical estimates examining the relationships noted above were carried out using the two-step system generalized method of moments estimation technique. Findings Results the empirical estimates suggest that regulatory policy uncertainty and macroeconomic risk adversely influence or constrain financial sector development among the economies examined in the study. Banking industry innovations on the other hand is found to positively influence the development of the financial sector in these economies. Furthermore, moderating empirical analysis suggests that effective governance positively moderates the relationship between banking industry innovations and financial development among economies in the subregion. Originality/value This study’s approach to the mechanics of financial development among economies in SSA is designed to offer different perspectives to those found in the existing literature on financial development in three fundamental ways. First, although the verification of the role of banking industry innovations in financial development may not be new, it is important to point out that the approach used in this study is based on an index for innovations with different constituents or principal components in its construction; making the variable significantly different from what has been examined in the literature. In addition, the review of regulatory policy uncertainty and macroeconomic risk (both variables are multifaceted constructs using the principal component analysis procedure) further brings into this study’s analysis, a different approach to examining conditions influencing variability in financial development among developing economies.