Harnessing the synergies of independent central banks and human capital for enhanced financial sector development in Africa

Using panel data from 2004 to 2012, we employ a two-step system GMM estimation technique, with robust standard errors, collapsed instruments and illustrate marginal effects of central bank governor turnover rates on financial development given various measures of literacy rates to examine the impact of central bank independence on financial development in Africa and the moderating roles of literacy rates on the CBI-financial development nexus. Human capital enhances the positive impact of dejure CBI on financial development in countries with higher literacy rates and worsens the negative impact of de facto CBO on financial development. Independent central banks can be made more effective in achieving financial development targets through governments improving literacy rates. The study is the first to empirically examine the impact of central bank independence on financial development using both dejure and de facto CBI measures and literacy rates in explaining this relationship.