Effect of Urbanization on Banking Sector Development in Waemu Countries: Evidence from Panel Quantile Regression

Abstract

Urbanization is one of the most significant forces on the planet in the 21st century. In Africa, cities and their inhabitants are at the heart of development processes. Within the African continent, the level of West African urbanization is 41% in 2010 compared to 36% in 2000. According to projections, by 2030, 50% of Africans will live in cities. Urban demand could be an engine of industrial development because the level of urbanization is associated with many positive outcomes, such as technological innovation, economic progress, higher living standards. As a result, urbanization could positively influence banking development. This paper examines the impact of urbanization on financial sector development in a panel of 7 WAEMU countries. Contrary to previous studies that focus on mean effects, it uses quantile regression methodology to examine the effect of urbanization on financial development in those countries that share a common currency. The results point out that urbanization and economic openness is favourable to the financial development of WAEMU countries. The study urges governments to create the necessary conditions for successful urbanization so that it benefits financial development. Economic openness must also be promoted as it is conducive to the financial development of the WAEMU region.