This study uses panel data techniques to investigate the determinants of financial markets development in Africa.

The paper concluded that a better protection of creditor rights, sound economic and trade policies, and economic growth stimulate the demand for cheaper credit. Good-quality institutions also lead to efficient supply of external finance; inefficient institutions form structural impediments to the supply of external finance. On the other hand, macroeconomic mismanagement and financial repression tend to discourage the demand for external finance, thereby derailing development of the banking system.

As for stock markets, domestic savings, stock market liquidity, and bank credit are shown to be important determinants of stock market development. Institutional quality is also found to be a robust and statistically significant determinant, which supports the case made by La Porta et al in 1997 - 99. Well-established institutions reduce political risk, a factor in investment decisions.

The authors of this study said that they din not find any positive and robust relationship between capital account liberalization and stock market development. Further analysis showed the existence of threshold levels of real GDP per capita and political risk below which the effect of capital liberalization on stock market capitalization is negative. Simulation results suggest that the overall marginal effect of capital account liberalization on stock market capitalization is positive in high-income and low-political risk countries. This finding is in agreement with recent studies showing that the impact of capital account liberalization on a country's financial development depends on its level of income and the quality of its domestic institutions.

The study confirmed that the relationship between banking sector and stock market development in Africa was positive, indicating that financial intermediaries and stock markets were complements, not substitutes.

The results that political risk, economic stability, and creditor rights protection are all important for banking sector development have significant implications for financial markets in developing Africa. Their significance implies that further efforts by African policy makers to reduce political risk and improve institutions, implement more open trade and sound macroeconomic policies, and better protect improve creditor rights can promote banking sector development. Similarly, policies to increase stock market liquidity, promote domestic savings, and build the financial intermediary sector can stimulate stock market development.#