Dynamic Effects of Financial Development and Institutional Quality on Capital Formation in Sub-Saharan Africa
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Abstract
This study investigates the impact of financial development and institutional quality on capital formation in Sub-Saharan Africa. Using panel ARDL (Pooled Mean Group, Mean Group, and Dynamic Fixed Effects) from 1996 to 2023, using a sample of 38 Sub-Saharan African nations. The results show that improved access to credit, higher savings rates, increased remittances, and better governance positively influence capital formation in the long run. The error correction term indicates a fast adjustment process towards the long-run equilibrium after short-run shocks. The findings suggest that policymakers should focus on strengthening financial systems, promoting domestic investment, and enhancing governance effectiveness to support capital formation in Sub-Saharan African countries. Further research is needed to explore the specific mechanisms through which financial development and institutional quality interact to influence capital formation in different countries within the region
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