The impact of financial development on economic growth in sub-Saharan Africa. Does institutional quality matter?

Abstract

ABSTRACTIt is hypothesized that a well-functioning financial market is necessary but not sufficient condition to achieve the expected economic growth. Therefore, policy instruments of government aimed at streamlining financial sector activity in sub-Saharan Africa (SSA) are imperative. As a result, this paper explores the effect of financial development on economic growth by allowing the link between the two far variables to be mediated by the quality of institutions for the period 2000–2019. Using Twenty-nine (29) countries and the System-Generalized Method of Moments (system-GMM) estimation method, it is found that financial development has a positive and significant effect on economic growth. In addition, it is found that, when rule of law, political stability, and regulatory quality are highly effective, the positive effect of financial development on economic growth is magnified.

Keywords

• Financial development
• institutional quality
• economic growth
• sub-Saharan Africa