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LTF Benchmarking
The purpose of the scoreboard is to inform policy makers, the private sector and donors about the availability of LTF across Africa. The LTF scoreboard implemented includes several indicators of the depth and inclusiveness of long-term financial markets and the data can be used to benchmark specific indicators according to structural country characteristics.
The LTF Scoreboard brings additional data on a cross-country level
The LTF Scoreboard assembles data across countries that is not available from other international sources. The data relate to the broader macroeconomic, financial and institutional framework. A benchmarking tool facilitates comparison of how Africa is performing compared to other global sub-regions. Every effort has been made to present the Scoreboard data in an accessible and easy-to-use format.
Methodological issues
It is not reasonable to assume that different countries in terms of population or GDP per capita etc. will be able to achieve the same level of financial development. Therefore, a benchmarking tool has been developed to allow comparison of country-level indicators relevant to the development of LTF.
The benchmarking tool is based on a three step process:
1. A regression model is used to assign weights to the importance of several structural factors (GDP per capita, population, the dependency ratio between old and young members of the population, whether the country in question is an off-shore financial centre, an oil exporting country, a former transition economy or a landlocked economy) in predicting the level of the benchmarked financial sector indicator.
2. The weights determined in 1) and the observed levels of the structural indicators for any specific country in a given year are used to determine the “predicted” value of the financial development indicator for that specific country in any given year. Predicted values reflect the level of financial development that a country with those specific structural characteristics is expected to achieve (its “optimal” level of financial development).
3. The financial development “gap” is calculated by subtracting the “observed” value from the “predicted” value. If the “observed” value is lower than the “predicted” value, there will be a positive gap. If the “observed” value is higher than the “predicted” value, the gap will be negative, indicating that financial development is higher than what one would expect given its structural characteristics.
Thus the LTF Scoreboard provides us with a predicted value for each indicator of financial development in each country. The gap between the actual and predicted level of financial development indicates whether the level of financial development is below or above the value consistent with the country’s structural characteristics (see LTF Scoreboard).
The regression analysis described above requires data to be available across a large sample of developed and developing countries. The benchmarking tool is only available for indicators for which international data availability is sufficient. The benchmarked value is based on panel regressions for a global sample over the period 1960 to 2017 (where available) where the log of each financial development indicator is regressed on (i) log of GDP per capita, (ii) log of total population, (iii) log of old dependency ratio, (iv) log of young dependency ratio, (v) dummy variables for off-shore financial centers, oil exporting countries, former transition economies and landlocked economies, and (vi) year dummies.
