Politics, finance and growth

Project overview

Project lead: Svetlana Andrianova, University of Leicester

Start date: 1 September 2012

End date: 31 March 2016

Project webpage

Research Council project page

Although the 2007-8 financial crisis led to suggestions that there can be too much finance, many low-income countries (LICs) remain financially under-developed. In sub-Saharan Africa, banks continue to lend little domestically, and even where financial development has taken place, its effects on the poor are generally unknown. By analysing the linkages between politics, finance and growth in Sub-Saharan Africa, this project aimed to explain how finance helps to promote pro-poor economic growth in LICs.

The project aimed to analyse the causes of financial under-development, focusing on:

  • determinants of high loan default in sub-Saharan Africa;
  • the role of incumbent financiers in deterring new firms’ entry; and
  • the role of natural resources on financial development.

It also aimed to re-examine key aspects of the finance-growth relationship by analysing the consequences of banks’ opportunistic behaviour on financial instability, and the effect of different types of financial reforms on bank soundness. A new measure of banking fragility constructed under the project helped determine if increased fragility explains the weakening of the finance-growth relationship.