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The Impact of Financial Development on Human Well-Being in Sub-Saharan Africa: Does Institutional Quality Matter?

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  • PRAO Yao Seraphin
  • Taky Ange Carelle

Abstract

This paper investigates the role of institutional quality in the effects of financial development on people's well-being in Sub-Saharan Africa. We use data from 35 countries from 2007 to 2021. The study tests for non-linearity between financial development and well-being by identifying threshold effects of financial development, using the panel smooth transition regression (PSTR) model of Gonzalez et al. (2005) and a quadratic model using the system GMM of Blundell and Bond (1998). The estimation results show that there is a non-linear relationship between financial development and well-being, conditioned by institutional quality and expressed as an inverted U-shape. There are financial development thresholds (40.217% for CRED and 49.038% for M2GDP) beyond which any improvement in the financial system leads to a loss of well-being in Sub-Saharan Africa. We show that low institutional quality reduces the positive effect of financial development on well-being. However, there are thresholds of institutional quality beyond which economic and political institutions reinforce the positive effect of financial development on well-being.

Suggested Citation

  • PRAO Yao Seraphin & Taky Ange Carelle, 2025. "The Impact of Financial Development on Human Well-Being in Sub-Saharan Africa: Does Institutional Quality Matter?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 16(3), pages 10-30, October.
    • Handle: RePEc:jfr:ijfr11:v:16:y:2025:i:3:p:10-30
    DOI: 10.5430/ijfr.v16n3p10
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    References listed on IDEAS

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