Financial market structure and entrepreneurship formalization in Sub-Saharan Africa: a nonlinear analysis

Kofi Bondzie Afful, Tendai Gwatidzo and Mthokozisi Mlilo

Journal of Financial Economic Policy, 2025, vol. 17, issue 6, 858-874

Abstract: PurposeThe purpose of this paper is to investigate the nonlinear relation between financial market structure and entrepreneurship formalization in Sub-Saharan Africa (SSA). It is a pertinent research concern considering the sub-continent’s atypical financial system and relatively low rate of formalization.Design/methodology/approachUsing comparative statics, this study develops an innovative analytical framework, premised on the Developmental Needs and Sequencing tenets, to consider the nonlinear influence of financial market structure on entrepreneurship formalization in a representative SSA economy. The general conclusions are empirically evaluated using quantile regression analysis.FindingsWhile the empirical findings confirm nonlinearity, a negative effect exists between the regressand and regressor at different quantiles. This highlights a seeming disconnect between formal financial markets and formalization in SSA even as bank resources increase. Empirical evidence does not affirm the Developmental Needs or Sequencing theories of financial market structure in SSA.Originality/valueThis paper makes original contributions because, first, this study is one of the few studies to investigate the nonlinear effects of financial market structure on entrepreneurship formalization in SSA. Second, this study presents a novel comparative static framework that considers the influence of bank–stock market dynamics on entrepreneurship formalization.

Keywords: Financial market structure; Financialization policy; Entrepreneurship formalization; Private sector development policies; Sub-Saharan Africa (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-10-2024-0328

DOI: 10.1108/JFEP-10-2024-0328

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