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Does trade openness promote financial development in Sub-Saharan Africa?

Author

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  • Fankem, Gislain Stéphane Gandjon
  • Feyom, Cédric

Abstract

In this paper, we re-examine the effect of trade openness on financial development in Sub-Saharan Africa using new multidimensional measures of trade openness and financial development. We also test the hypothesis that this effect is conditional on high levels of financial openness. We find that the level of financial development is an increasing function of the level of trade openness. Moreover, the positive effect of trade openness on financial development is conditional on very high levels of financial openness. Trade openness also improves the depth, access and efficiency of financial institutions and financial markets. Our results are robust to indicators of trade openness and financial development, alternative specifications, estimation method, endogeneity, and cross-sectional dependence. Thus, contrary to previous studies, our findings suggest that financial development in Sub-Saharan Africa can be enhanced by the simultaneous implementation of policies favoring trade and capital account liberalization.

Suggested Citation

  • Fankem, Gislain Stéphane Gandjon & Feyom, Cédric, 2025. "Does trade openness promote financial development in Sub-Saharan Africa?," International Economics, Elsevier, vol. 182(C).
    • Handle: RePEc:eee:inteco:v:182:y:2025:i:c:s2110701725000137
    DOI: 10.1016/j.inteco.2025.100590
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    Keywords

    Trade openness; Financial development; Sub-saharan africa;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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