Abstract:
The financial development of many Sub-Saharan African countries over the years
has not been able to match up with other regions like the Middle East and North
Africa, East Asia and Pacific, and Europe and central Asia (IMF, 2016). Trade
openness has been argued in several empirical literature as a factor that could spur
up the level of financial development, although the high levels of trade openness
in Sub-Saharan Africa is not contributing much to the desired levels of financial
development in Sub-Saharan Africa. However, there is an indication in literature
that trade openness will be more relevant to financial development of economies
that have a strong institutional quality. Thus, by using system General Method of
Moment estimation technique, this study examined how institutional quality
moderates the relationship between trade openness and financial development of
Sub-Saharan African economies. The study found that institutional quality
enhances the effect of trade openness on financial development of Sub-Saharan
African economies. It is therefore recommended that, Sub-Saharan African
economies should put in measures to strength their institutional quality so that the
high levels of trade openness will better enhance financial development.
Specifically, trade openness can better enhance financial development by
improving government effectiveness, reducing corruption, enhancing regulatory
quality, abiding by the rule of law, and allowing voice and accountability. As an
extra benefit, the improvements in institutional quality on their own too will yield
positive impact on financial development.
