Financial sector development and industrial sector performance in West African Monetary Zone (WAMZ) countries: A threshold effect of human capital

There has been increasing studies that details the transmission channels through which financial development permeates to speed up growth to higher echelon. Studies have underpinned that financial development yield more growth when these channels are optimized. With studies on real sector performance sparse, this paper contributes to this discussion as it examined the effect of financial development in fostering industrial growth under the condition of high and low human capital endowment. This was investigated for a sample of five (5) West African Monetary Zone (WAMZ) countries from 1990 to 2022. The study developed a panel threshold regression (PTR) model where human capital functioned as threshold variable and data collected from the United Nations Conference on Trade and Development (UNCTAD), World Development Indicator (WDI) and International Monetary Fund (IMF) databases. The study finds a threshold effect of financial development on industrial sector growth. The PTR estimator shows financial development can produce more industrial growth if human capital exceeds a gross of 62.9493%. Additionally, other factors such as trade openness, natural resource rents and higher labour participation in economic activities support industrial sector growth. In the design of industrial growth enhancing policies, policy mandarins should implement measures that improve human capital and further develop the financial system by scaling up education expenditure to the UNESCO prescribed 26% of GDP, educating women, leveraging technology to improve human capital productivity and outcomes, reducing loan collateral requirements, strengthening legal frameworks, and boosting banking competition by allowing entrant of capitalized financial institutions and timely exist of insolvent ones.