Political instability and financial development in the CAR

The aim of this study is to show that poor financial development in the Central African Republic (CAR) is explained by political instability. The analysis covers the period 1975-2013. The theories of law and finance, as well as the political thesis, are selected for this study. Results obtained using a Sims (1980) VAR model show that political instability explains low financial development through real channels. We also find that political instability significantly reduces financial development in the Central African Republic, and the negative effect increases as political instability intensifies. The study concludes that a reduction in political instability is essential for the success of any financial reform in the Central African Republic.