Includes bibliographical references. / The literature is replete with the determinants of economic growth and identifies financial development as one of the important drivers of growth. Financial development is viewed as a process through which financial intermediaries such as banks lubricate the economy by creating a conduit for resources to flow from surplus sectors to deficit sectors. Effective financial development depends on many factors such as financial integration which facilitates international trade and free mobility of capital. However, in order for the positive impact of financial integration to be fully felt on financial development, it must stimulate competition in the domestic banking market without eroding financial stability. Therefore, the central hypothesis of this study is that financial integration can enhance financial development if such integration makes the local banking industry more competitive without increasing its vulnerability to financial instability. The study employs various panel data techniques to test this hypothesis using the Southern African Development Community (SADC) as a case study. The findings reveal that the banking industry in SADC is characterised by monopolistic competition. In addition, financial integration enhances banking competitiveness in the region through removal of barriers to free flow of capital between countries. Furthermore, higher competition is found to be good for financial development as it reduces the magnitude of the financial intermediation spread. Moreover, the study finds that the flipside of financial integration lies in its potential to cause financial instability in the region with negative repercussions for financial intermediation. The findings imply that, even though financial integration is good for financial development through its ability to increase the degree of competition in the banking industry and reduce the spread between lending and deposit rates, member states must put policies in place to effectively prevent the likely erosion of financial stability. No single policy is sufficient on its own to achieve this. Therefore, this study recommends that as members of SADC move towards deeper financial integration, they must ensure that they formulate and implement sound and appropriate common policies in order to ensure that financial stability is not compromised as restrictions to capital-flows are abolished or reduced. Such a policy-mix requires four ingredients, namely; sound financial liberalisation policies, competition policies, macroeconomic policies and regulatory and supervisory policies.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/12834 |
| Date | January 2014 |
| Creators | Motelle, Sephooko Ignatius |
| Contributors | Biekpe, Nicholas |
| Publisher | University of Cape Town, Faculty of Commerce, Graduate School of Business |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Doctoral Thesis, Doctoral, PhD |
| Format | application/pdf |
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