Political stability, trade openness, and financial development in Sub-Saharan Africa

Abstract

This study examines the effect of political stability, trade openness, and their interaction on financial development in Sub-Saharan Africa. The analysis is based on panel data covering 40 Sub-Saharan African countries over a twenty-eight-year period from 1995 to 2022. The study employs a dynamic model estimated using the system Generalized Method of Moments (GMM) approach of Blundell and Bond (1998). The results show that political stability and absence of violence (SPeAV) have a negative and significant effect on private sector credit, while trade openness (lOuvC) has a positive and significant impact. The interaction between political stability and trade openness (SP_OC) is also positive and significant, indicating that political stability becomes favorable to financial development when combined with greater trade openness. Robustness tests by income level and region confirm the reliability of these findings. The study suggests that public policies should combine political stability, trade openness, and promotion of the agricultural sector to stimulate private financing and support sustainable growth.

Classification JEL : E44, G21, O16, O55

Paper type : Empirical Research