FINANCIAL DEVELOPMENT, GROWTH VOLATILITY AND INFORMATION ASYMMETRY IN SUB-SAHARAN AFRICA: DOES LAW MATTER?

Abstract

We re-examine the law–finance theory relying on 33 countries in sub-Saharan Africa over the period 2004–2011. Our evidence suggests that legal origin significantly explains cross-country differences in financial development and economic volatility. More importantly, relative to civil law, English common law countries and those in Southern Africa have higher financial sector development both in terms of financial activity and banking efficiency on the back of lower volatility. While private credit bureau positively (negatively) affects financial development (economic volatility) with economically large impact for English legal legacy countries, the latter effect is contingent on the form of legal origin suggesting that, the establishment of information sharing offices per se may be insufficient in taming growth vagaries.