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Inflation And Financial Development In Sub-Saharan Africa

Author

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  • Witness Nyasha Bandura
  • Temitope L. A. Leshoro

Abstract

This paper analyses the relationship between inflation and financial development in sub-Saharan Africa. This issue is important because the level beyond which the inflation rate affects financial development in sub-Saharan Africa is not known, despite the underdeveloped financial system in the region. This paper presents a model in which inflation is endogenously determined, and uses a dynamic panel threshold approach which takes this factor into consideration to ensure improved results. The pure cross-section method and non-dynamic panel threshold approaches were also utilised. Strong evidence of a negative impact of inflation on financial development is obtained, which increases with a rise in inflation. An average inflation threshold of about 5% is established, below which a positive impact on financial development is found. There is, however, a negative relationship beyond the observed threshold. The paper provides policy recommendations as to how authorities should contain inflation to facilitate financial sector development in the region.

Suggested Citation

  • Witness Nyasha Bandura & Temitope L. A. Leshoro, 2022. "Inflation And Financial Development In Sub-Saharan Africa," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(233), pages 85-112, April – J.
    • Handle: RePEc:beo:journl:v:67:y:2022:i:233:p:85-112
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation; financial development; panel threshold techniques; sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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