Does institutional quality promote financial development in the Democratic Republic of Congo? Essay of analysis based on the ARDL approach

Essay of analysis based on the ARDL approach

Abstract

As institutions are in theory a sturdy determinant of financial sector emergence, this paper examines the relationship between these two variables in the Congolese context over the period 1996-2021 (26 years). It is based on the ARDL approach for testing the short- and long-term dynamic of the effects of institutional quality on the financial development. The results brought out reveal that a climate of peace and political stability is suitable for the extending of the financial system scope by facilitating the access to credit. However, the regulation and its non-extension are becoming restrictive and are slowing down the effects expected in the short term. These effects of the regulation quality become favorable in the long term because of the abridgment of informational, enablement and adaptation challenges. It follows, moreover, that the inefficiency of Congolese governments in designing and healthily carrying on policies and growing strategies compromises the widespread distribution of credit to the private sector in both the short and the long term. Although it has slightly contributed to the increase of the short-term credit volume, the cultivation of corruption - which has become institutionalized - remains harmful to the harmonious financing of the economy in the long term. To do this, the DRC should henceforth invest more in cleaning up its institutional landscape for the building and the development of a tough and inclusive financial sector.

Keywords: Institutions, Institutional quality, Financial development, ARDL

JEL Classification: E02, E51, G21, K00

Paper type: Empirical research