The role of Financial Development on Foreign Bank Presence and Inclusive Growth in Africa

The study examines the moderation role of financial development foreign banks-inclusive growth nexus in 28 African countries. We found a positive effect of foreign bank presence on inclusive growth whereas a developed financial system has the potency to deepen the positive effect. Likewise, there is a direct positive effect of financial development on inclusive growth. We used 9 variables out of 35 from Asian Development Bank framework for inclusive growth. The 9 used incorporated the percentage of the population using an improved water source, the percentage of the population using at least basic sanitation, percentage getting access to electricity, employment to population ratio, the proportion of the population using improved drinkable water, Human Development Index (HDI) which captured education, health, and income equality, control for corruption, voice and accountability, mobile cellular subscriptions and government effectiveness. While HDI was sourced from Human Development Report Office, control for corruption, voice and accountability, government effectiveness were sourced from World Governance Indicators (WGI). The rest of the variables were collected from World Development Indicators (WDI). We used principal component analysis to create the index, then we used the minimum-maximum approach to normalize the index. Therefore, as the index approaches 1, then it means there is a high inclusive growth and the opposite is true. A ratio of foreign bank assets to total universal banks' assets was used as a proxy for foreign bank presence, hence a value closer to 1 suggests more foreign banks and vice versa and was sourced from Bank Scope. The financial development index by Sviryzdenka (2016) was used as a proxy for financial development, and we sourced it from IMF, it ranges from 0 (less developed) to 1(highly developed). Inflation, the consumer price index is used as a proxy for inflation and was used to capture the macroeconomic (in) stability of a country. A vector of exports and imports to GDP was used as a measure for trade openness which was sourced from WDI. We sourced bank concentration (%) from the Global Financial database of the World Bank. An average of six indicators of institutional quality was used as a proxy for institutional quality and was sourced from WGI. The index comprises the estimate of; rule of law, government effectiveness, voice and accountability control for corruption, political stability and absence of violence, regulatory q