Financial development in Africa: Do expenditure and population matter? Evidence through pooled mean group and generalized method of moments estimators

This article assesses the impact of government expenditure and population structure on financial development among selected African economies for a panel of 37 selected African economies from years 1980 to 2018. The pooled mean group regression estimator was used, which suitably isolates short run from long run impacts while allowing for heterogeneities and homogeneities for each run respectively. Additionally, generalized method of moments technique was applied for robustness check and allows for dynamism in the estimations. Findings show that financial development is sensitive to both productive and non‐productive government expenditures in the long run. They affirm positive impacts convergences on financial development. Financial development responds only to non‐productive expenditures in the short run. Young and elderly populations do not benefit financial development but mature population does due to its active role in the private sector. Further, it helps support the negative impact of inflation and provides positive impacts of economy openness and individual's economic output. Also, results support short‐run adjustment towards long‐run equilibrium. These results are significant both statistically and economically. Unlike former studies, this work comprehensively disaggregated government expenditure into productive and unproductive types. It isolated population structure age‐wise. In order to stimulate financial development, governments in Africa need to favour policies that stabilize government expenditures, having both short‐run and long‐run foci, encourage public–private partnership and mutually beneficial linkages, devise population policies based on respective age‐structures, and promote economy openness, and growth per capita, and control inflation.