Three Empirical Essays on Interventionism and the Economic Impact of International Financial Integration in Africa

Nitish Gobin

Advisor: Carlos D Ramirez, PhD, Department of Economics

Committee Members: Peter J. Boettke, Lawrence White

Buchanan Hall, #D002
November 17, 2023, 11:00 AM to 01:00 PM

Abstract:

This dissertation consists of three empirical essays on Austrian interventionism and international monetary economics in Africa. Chapter one deals with the unintended consequences of government intervention in Africa. Chapter two shows empirical evidence of the unintended consequences of government intervention on economic growth and economic freedom index in Mauritius as well as its indirect influence on the independence of the central bank. The third chapter is an empirical study to determine the drivers and impact of international financial integration on African economic growth.

Chapter one studies the unintended consequences of government intervention on economic growth and economic freedom as predicted by Hayek’s fatal conceit and Mises’ socialist calculation problems by conducting a panel data regression analysis on for 54 African states from 2000 to 2021. Direct government intervention like government spending, subsidies and transfers, and external debt to GNI impact negatively economic growth in a statistically significant manner. Moreover, indirect intervention like seigniorage as a percentage of government expenditure are also negatively correlated to economic growth and economic freedom index although. 

In chapter two I use Mauritius, a former British colony, as a case study to show evidence of the unintended consequences of government intervention in the economy as well as its indirect influence on the independence of the central bank over the period 2000-2021. Government expenditure and external debt as a percentage of GNI negatively impact economic growth and economic freedom index in a statistically significant manner in Mauritius. I show evidence of how the Mauritian government has leveraged on the central bank’s discretion to have recourse to seigniorage to finance public expenditure since, at the expense of the public’s welfare. 

The third chapter shows empirically how international financial integration contributes to economic growth in a statistically significant manner in Africa. To boost intra-African trade and investment, it is important for financial flows to move freely from capital surplus to deficit countries and to identify institutional roadblocks. Using panel data regression analysis for the whole 54 African states from 1996-2019, this paper gives empirical evidence that a 10% improvement in African institutions improve international financial integration among the top 14 countries by 8.3%. On the other hand, stock market capitalization as a percentage of GDP is the other key determinant of international financial integration. Per capita income impact international assets trade negatively significantly implying that as a country progresses more international investment in foreign assets is substituted for domestic ones.