Trade Liberalization and Inclusive Growth in West Africa: Investigating the Moderating Role of Financial Deepening
DOI:
https://doi.org/10.32350/jfar.81.04Keywords:
financial deepening, inclusive growth, system generalized method of moments, trade liberalization, West AfricaAbstract
The current study aimed to investigate the effect of trade liberalization (TRL) and financial deepening (FID) on inclusive growth in West Africa. The study proxied inclusive growth using the framework advanced by UNCTAD (2022). Furthermore, these measures were aggregated through Principal Component Analysis (PCA) to generate inclusive growth index. Similarly, FID was also generated by PCA. The current study employed System Generalized Method of Moments (SGMM) to address the issues of endogeneity and unobserved heterogeneity. The empirical findings revealed that TRL has a positive effect on inclusive growth. This implies that, liberalizing trade enhances access to the market, increased efficiency, and technology diffusion in the region. However, FID exerts a negative effect on inclusive growth. This suggests that, increased FID tends to benefit higher income class rather than ensuring that the benefits are evenly/widely distributed. Notably, the interaction results revealed that FID positively affects the relationship between TRL and inclusive growth in the region through increased access to credit, export diversification, and technological adoption. This study concluded that while TRL serves as a catalyst for inclusive growth in the region, its full benefits depend on the structure and accessibility of financial system. Therefore, there is a clear need for targeted financial reforms that prioritize inclusion, particularly by expanding access to credit for small and medium-sized enterprises (SMEs) and underserved populations within the region.
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