Financial Market Development and Economic Growth in Sub -Saharan Africa

Abstract

There is an overgrowing concern of the relevance of financial market development and economic growth in contemporary times. However, there still remains an unexplored analysis of the underlying determinants of this relationship which moderate from forces of portfolio risks and financial market liberalisation. The study provided insight into financial market development and economic growth in Sub-Saharan Africa using GMM panel regression for moderation role and panel seemingly unrelated regression model for bidirectional estimation and threshold analysis. We considered impulse response functions to examine adjustment path of growth to shocks. Using GMM and panel SUR estimations on 34 SSA countries covering 1996- 2016, we found a significant contributing role of industrial production in the stock market–growth nexus and a downward sensitivity of growth in the integration of a liberalised money market. Further, the study found optimal operating thresholds for financial market instruments. The study therefore advocates that value added from industrial production be allocated to stock acquisition to ensure growth and prudential regulations be strengthened in liberalised money market.