FINANCIAL INTEGRATION AND ECONOMIC DEVELOPMENT IN SUB-SAHARAN AFRICA

ABSTRACT

The study examined the effect of financial integration on economic development in Sub-Sahara Africa. The specific objectives of the study were to ascertain the effect of human capital, trade openness, financial development and institutional quality on economic development in Sub Saharan Africa.Panel data of three (3) countries in Sub-Saharan Africa obtained from World Development Indicator database were used in the analysis for the period 1995 to 2020 respectively. Several statistical and econometric techniques of descriptive statistics, correlation analysis, panel unit root test, co-integration test, the Fully Modified Ordinary Least Squares and the Pooled Mean Group estimator model were used to estimate the country specific data and the dynamic heterogeneous panels analysis for the region.Findings show that the financial integration had different impacts on economic development in the various economies sampled. Nonetheless, financial integration was found to have a significant impact on economic development after controlling for financial development. Specifically, findings show that financial integration had no significant impact on economic development in Nigeria and Kenya. However, financial integration was found to have a significant impact on economic development in South Africa. On combining the economies together (Sub-Saharan Africa), financial integration had a significant impact on economic development in the long-run only after controlling for financial development. However, no significant short-run relationship was found between financial integration and economic development in Sub Saharan Africa. Second, findings showed that trade openness, human capital development, financial development and the macroeconomics variables considered in the model had a significant impact on economic development in specific economies sampled and Sub-Saharan Africa. On pooling the data, similar trend was obtained as trade openness significantly impacted on economic development after controlling for the impact of financial development. Only institutional quality was found not to have significant short and long run influence on economic development in specific economies sampled and Sub-Saharan Africa. From the findings this study concludes and recommends that recommend that individual countries sampled should check the extent of financial integration in their economies as financial integration was found to have mixed effect on economic development. This is especially so given that highly financial integrated economies are prone to financial contagion or spill overs.