Financial liberalization in Africa: growth, crises, and sequencing of reforms

Abstract

This study examines the impact of financial liberalization on economic growth in African countries with imperfect credit markets. While liberalization is expected to ease financial constraints and promote growth, the African experience has largely been marked by crises, except in Egypt. Post-liberalization sectoral credit asymmetries led to a decline in construction relative to agriculture due to reduced bank credits. The study emphasizes the importance of sequencing reforms carefully, leveraging trade liberalization and agricultural productivity, and implementing prudential regulations with social protections to mitigate potential crises and economic instability.