Empirical evidence of the financial development and economic growth nexus in sub-Saharan Africa (1995–2022): an index approach

Author:

Hyacinth Chebangang,Ngong Chi AloysiusORCID,Onwumere Josaphat Uchechukwu Joe

Abstract

PurposeThis research empirically investigates the evidence of the financial development and economic growth nexus in sub-Saharan Africa from 1995 to 2022.Design/methodology/approachA series of preliminary tests are conducted before using the two-stage estimated generalized least squares and robust least squares methods for the analysis. Two indices are constructed to measure financial development: one for the banking sector indicators and another for the market-based indicators (Ustarz and Fanta, 2021).FindingsThe results indicate that the banking sector index significantly impacts the gross domestic product (GDP) per capita positively. The market sector index has a negatively significant effect on the GDP per capita. Government expenditure has a positive impact on the GDP per capita.Research limitations/implicationsPolicymakers in sub-Saharan Africa should improve and implement finance–growth inclusive strategies that promote financial reforms and development to efficiently impact all population sectors. Policymakers should take stringent measures to ensure that the banking sector's development is sustainable to lead economic growth. The governments should strategize and promote capital market development using favorable listing rules for companies in the stock markets. Global stock market integration should be encouraged to diversify risks, increase public awareness, raise investors' confidence level and reduce stock market impediments like high taxes and regulatory barriers.Originality/valuePrevious study findings on the financial development and economic growth nexus are inconclusive and debatable. This study employs the financial development index approach.

Publisher

Emerald

Subject

General Environmental Science

Reference62 articles.

1. Financial sector development and economic growth in the Southern African Development Community region;Journal of Economic and Financial Sciences,2019

2. Acemoglu, D. and Robinson, J. (2010), “The role of institutions in growth and development”, in Brady, D. and Spence, M. (Eds), Leadership and Growth, The World Bank, Washington, DC, pp. 135-164.

3. Finance–growth nexus in sub-Saharan Africa revisited: evidence based on a new composite index;Economic Change and Restructuring,2020

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